The Human Cost

While most small and medium size businesses have significant labor and related costs, most of those companies don't truly connect on what those costs are. The obvious costs of payroll, taxes, benefits, and training are generally where business managers focus. But what about the ancillary costs related to housing employees, communications (phones and PCs), software licenses, training, and the need for more personnel to manage the increase in personnel? And what about the soft costs like morale and "conversation at the water cooler"?

When all has been accounted for, in many companies, human-related costs are so overwhelming, the business spends more time and resources on people and control of those people than on the product it's trying to sell to pay for the people.

So how could today's businesses deal with these costs effectively?

1. Conduct or get an industry survey of wages and then MAKE ADJUSTMENTS WHERE NECESSARY. It is shocking how many companies are out of line with their salary or more often benefits offerings. It's even more surprising how many companies do an industry/geographic wage comparison and then do nothing. My advice is let the data make the call here. Most of the time, the DATA IS RIGHT. It's understandable that a manager or business owner will feel loyalty towards an employee or even call them a friend, but at the end of the day, the manager or business owner has a responsibility to do what is best for the business.

2. Standardize. Consistency and standardization allow for fewer people to do more and do so more efficiently. This sounds hauntingly similar to creating a repetitious "system" your company runs by. While creating a system may feel restrictive, it will promote processes to be repetitive and hence more dependable. And in the end, if you have an error or mistake being made, it's probably either a deviation from your system or a problem within the system that can easily be rectified.

3. Find the best and keep them. If all of those costs listed above are costs that your company incurs, get the right folks on the bus and drive! You're spending some significant resources (and not just cash) so you better make the most of it. And don't forget the cardinal rule regarding these costs: the BEST time to fire someone is BEFORE you hire them! Take your time finding the right folks, follow a process in hiring, and demand accountability.

4. Share the info. If you have the right folks on the bus in the right seats, then allow them to participate with the same institutional knowledge that you have. Said differently, share the books with them. I'm not suggesting sharing salaries or allowing them to participate in bonus discussions, but good teams result from trust and equal dependance. Almost every one of them will be flattered and more importantly take it very seriously. And here's the scary part..you might find someone who's as good or better than you and they might even have some ideas that would benefit everyone.

5. Give them lemons, tell them how much lemonade you want, then stand back. If you muck up the works by "controlling" how everything happens, you are in fact preventing #2 above from taking place. Coach behaviors and pay for results. Enough said.

6. Get rid of the box. Be creative with how and where you work especially if you are in a boring industry like accounting or law (sorry, but budgets, asset valuation, cash burn rates and tax advantages can be dry in most any discussion). Get "OK" with folks working from home or finding the nearest coffee shop to pound out a report in. The days of bricks and mortar and trotting into the office for an 8 to 5 session behind a desk are coming to an end. Just ask HP.

7. You've created a community, now you have to manage it!! Encourage every member of the team to participate through every avenue of communication you can find. Instant messaging, email, blogs, et. al. Social media is the new buzz. It's free, cheap and quick so maybe it's here to stay, but regardless, it's another way to interact. Oh, and by the way, whether you encourage or discourage this type of communication, IT WILL HAPPEN. Take a second and just imagine your employees coming in the office and tweeting about how awesome it is to work for your company. Now imagine how much it would really wreak havoc on your image if they came in and tweeted about how much you and/or your company cause them to lose sleep! You may have a sudden urge at this point to go out and spend hundreds of thousands of IT and security dollars to "keep things secure and minimize risk" by limiting external communication, but the reality is, that security will only cause distrust in you and your IT outsourcer to get rich.

So of the seven points above, most all of it has been focussed on the "hard and soft" costs of personnel. The honest truth is that the greatest percentage of people that leave companies (sans those dotcom crazies and professional athletes) do so because the company they have left sorely lacked professional and competent management. Money is almost never the reason. Shocking isn't it? More on competent management in future posts.

Cash isn't just "King", it's The Master!

It truly is amazing the amount of pain and discontent our companies go through as a result of lack of cash. Obviously, you must have a viable business idea and the ability to support whatever operating expenses the business will have. But beyond that, if run well, cash should NEVER be the problem if treated appropriately.



Many people have heard the saying, "Cash is King". And to a large extent, that saying is right on! But have you thought about the decisions you might make in your business if in fact, you had as much cash as you could have? Said differently, what would you do if you had no accounts receivable and everything was current? Have you considered how you would run your business differently? Have you thought about the real expenses you could reduce or not even incur? What about the opportunity cost? What about your liquid advantage?



Some of the hard costs associated are:

1. Additional headcount to collect said receivable.


2. Interest expense as a result of lines of credit being used.


3. For every 30 days an account is outstanding the company is giving away .5 to 1 full percentage point by not being able to draw interest on that cash.


4. Often times, late fees are incurred.


5. Any discounts offered by suppliers are missed.

While the above costs seem small, they can amount to 5% or more of annual sales. In many businesses that percentage accounts for half or more of the net profit of the business.

In addition to the hard costs incurred when a business lacks cash, there are opportunity costs such as the ability to negotiate better supplier/vendor bids or quotes when you guarantee quick payment. Those terms can be as high as 6 to 8% in certain economic times (such as the ones we are experencing now).

The largest expense to most businesses is labor. If in fact that is true, then doesn't it make sense that the most detrimental effect to a business is what any problem causes within the labor force? Employees will spend endless hours worried, confused, gossiping, "chatting" around the water cooler etc. (Just a side note, time people's smoke breaks and lunches if these are struggles your company is having.) Their intention is not to waste time, but to protect themselves from that which they are making worse with their actions. But this isn't a "chicken before the egg" thing. This is all fixed with cash. There will be more on employees in future entries..this is a fun and interesting topic.

So the final and most important point to make here is really quite simple. Take whatever amount of money that is owed to you by another and add it up (your total receivable balance). If all of those payments came in today, how much of an advantage would you have over your competition? If your competition has a 30-40 day recievable cycle, for 30-40 days, you'd have cash in your bank that they wouldn't. Can you say marketing? Or better yet, can you say pay bonuses so you maintain the best workforce around? These are just a couple of things that happen when you maximize what we call your LIQUID AVANTAGE.

So back to that "cash is king" thing. King doesn't really describe how or what cash is. Cash is our Master. If you respect it and treat it appropriately, it is a strict and stable control force. So next time you hear cash is king....just make the distinction that it really is much more.