Tyler R. Martin, CPA

The Business Edition, Volume 1, Issue 2, May 11, 2005

The attached PDF contains several informative articles about issues affecting small business that I thought you would find helpful.

A topic that isn't discussed in the attachment but can be devastating to small business owners has to do with excess payroll cost.  Having too much payroll can be caused by many factors such as:

- Overstaffing for anticipated growth

- Keeping staff during slower times in anticipation of a return to previous earnings

- Mismanagement

- Not fully understanding the numbers of your business (i.e. key ratios, profitability, etc.)

Staffing and employment cost is usually the largest expense for small business owners and can have the biggest return on your investment, too.  Typically, when there is a possibility to enjoy a big return on your investment, a healthy amount of risk is involved.  In this case, the risk is overstaffing and not having the profit to show for it.

My experience has shown businesses tend to overstaff which can lead to losses and cash flow problems.  Consequently, correctly managing payroll cost can be the difference between making a profit or even potentially going out of business.

How can you diagnose a problem and increase efficiency?

There are many ways and here are a few ideas:

Sales per employee ratio.  This ratio will tell you how much you have to spend in wages for every dollar of sales.  With a little bit of business history or industry standard ratios, you can get a feel fairly quickly of how your company is producing.

Create Operations Manuals.  Having written procedures  and processes in place ensures you can replace employees when needed with minimal disruption and ensures a consistent and efficient process is followed.  Also, operations manuals can reduce training costs when new employees are hired.

Keep communication open with employees.  There may be times when you have to cut hours, work days, etc.  Open communication can make this easier to discuss.

This brief article is just a starting point for evaluating employee cost and making sure you are getting the appropriate return on your investment.

If you need my help or would like to discuss this article further, please fell free to contact me.

JOKE OF THE DAY

The owner of a large factory decided to make a surprise
visit and check up on his staff. Walking though the plant, he
noticed a young man leaning lazily against a post.

"Just how much are you being paid a week?" said the owner
angrily.

"Three hundred bucks," replied the young man.

Taking out a fold of bills from his wallet, the owner
counted out $300, slapped the money into the boy's hands, and
said "Here's a week's pay -- now get out and don't come
back!"

Turning to one of the supervisors, he said "How long has
that lazy bum been working here anyway?"

"He doesn't work here," said the supervisor. "He was just
here to deliver a pizza!"

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