Business Development

The Hidden Costs of Employee Turnover and How to Reduce Them

Is high employee turnover an issue in your company? If so, you may already realize how costly it is. It affects your bottom line and cuts into your profits. Or maybe, it’s so bad that it’s turning your profits into losses. The question is, are you doing everything you can to reduce the costs associated with the turnover? 

The Costs

To control the costs, first, we must know what they are. Only then can we tackle them. Here’s a list of the most common costs associated with employee turnover.  

  1. Hiring costs
    • Advertising costs
    • Time spent screening resumes, scheduling interviews, and interviewing candidates
    • Background check costs
    • Signing bonus, if any
    • Time spent setting up the new employees in payroll, IT, HR, completing forms, setting up equipment, generating badges, and more.
  2.  Training costs
    • Time spent training the new employee
    • Costs of any required training courses on safety, sexual harassment, timesheet, and other required onboarding training, etc.
    • Costs of mistakes made by new employees
    • Productivity losses while new employee gets up to speed
    • Extra supervisory costs monitoring new employee
  3.  Vacancy losses
    • Costs of overtime while other employees cover vacant shifts
    • Productivity losses while the job is vacant
    • Disruption of peers, including fears of them being next if it was an involuntary termination

How to Reduce Turnover Costs

Here are some ideas for reducing or avoiding these costs before they occur.  

  1. Create a positive culture. If your workplace is a positive, nurturing place to be, people may be more likely to stay. Create a place where employees can become good friends. That way, they are less likely to leave.  
  2. Review your pay package. Pay slightly more than your competitors. Or provide above-average benefits for your employees. Include perks that are less expensive, yet valuable to employees.
  3. Consider overstaffing. This puts less pressure on all of your employees. 
  4. Automate and streamline your hiring process. This can keep hiring costs down when you do need to hire.  
  5. Create a healthy work environment. Listen to your employees and make sure their needs are being met so they can do the best job possible for your business. Provide them with the tools they need to do their job well.  
  6. Hire slow, fire fast. If you do have a worker who is dragging the entire team down, get rid of them fast.  
  7. Train your first-line supervisors and managers to be excellent bosses. People skills and supervisory skills do not normally come naturally but can be learned. Many voluntary terminations occur because people dislike their boss.
  8. Be consistent with raises and performance reviews. Employees expect annual raises in most industries, even if it’s just a cost-of-living adjustment. Let employees know how they are doing on a regular basis, and formalize the process at least annually.  
  9. Conduct exit interviews. Find out why people are leaving by conducting exit interviews. You may have to dig deep to find out the real reason, as most people don’t want to burn their references. Take action if it’s something in your control.  
  10. Delegate projects. Keep the job interesting for employees by delegating low-risk projects that are fun for them to do. 
  11. Communicate purpose. Help employees understand the importance of the job they do, and help them connect to the deeper meaning of their job and its place in the world.  

Many of these ideas have costs associated with them. Your accountant can help you do a cost-benefit analysis to determine the specific costs and if the benefits will outweigh the costs. Then you can create a plan to tackle and reduce the high, hidden costs of employee turnover in your business. 

The 13-Week Cash Flow Forecast

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One of the best tools to forecast cash requirements is the 13-week cash flow forecast. It can help a business owner predict what their cash balance will be 13 weeks in the future. It helps to answer whether there will be enough cash to cover payroll and bills for a particular week. If you’re having significant ups and downs in your cash balance, it’s the perfect tool to help gain clarity around your cash needs.

Thirteen weeks may sound like an odd length to select, but it’s the length of a calendar quarter. This is the length of a financial projection that is typically used when a business is in financial distress; however, it’s also useful when a company is going through some ups and downs or simply wants to get a better handle on its cash requirements.

The forecast computations start with entering cash receipts and cash disbursements into a spreadsheet. Start with actual spending and receipts for the first week, then use estimates for the remaining weeks. Include planned expenditures such as overhead, payroll, and loan payments. Add in inventory purchases. Project your receipts based on history or recent changes in your business.

Once you’ve completed your forecast, you can make changes and do what-if scenario planning. For example, if the forecast shows that you will run out of cash in week seven, you have some time to decide what you need to do to remedy the shortfall. Options might be:

  • Accelerate the collection of 30 percent of your receivables.
  • Dip into your line of credit to cover a portion the shortfall.
  • Furlough 10 percent of your workers.

Plug your selected scenario into the forecast to see how much that relieves your shortfall.

The benefits of creating a 13-week cash flow forecast are many. You can see what actions need to be taken and when to take them well ahead of time. You can also see how much of an action you need to take. For example, instead of furloughing 50 percent of your staff, you may only need to furlough 25 percent.  Or instead of borrowing $50,000, you might only need $20,000.

The cash flow forecast can also save time when developing your annual budget. Budgets are especially useful when business conditions are volatile or when business owners need all the clarity they can get.

Try your hand creating a 13-week cash flow forecast for your business, or reach out to us for help any time.

Building a Continuity Plan for Your Business

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At the beginning of 2020, you might have thought that developing a business continuity plan was not a top priority. Or maybe you thought it was only for large businesses. Fast forward to today, and a business continuity plan has become an essential staple in business planning.

There are more business risks than ever before to consider that can affect business continuity. Businesses are being shuttered, reopened and shuttered again from the pandemic, fires, hurricanes and damage from riots, just to mention a few of the more common issues in this unusual year.

The biggest benefit of a business continuity plan is the process of developing it. It helps you think through the steps you should take if a business interruption occurs. If you have a disaster recovery plan – or even a few steps jotted down of what you’d do – then you have already started a portion of the process.

Here are some of the major pieces of a business continuity plan to consider developing for your business.

Roles and Responsibilities

In this section, all of the business stakeholders should be identified and listed. On a high level, questions like these should be answered:

  • What is each person’s role within the company, and how would that change if the business is interrupted?
  • What new skillsets should be acquired in the case of a disruption?

Potential Impacts to Your Business

This part of the continuity plan lists major scenarios where something could go wrong with your business.  It should include things like weather events, fire, riots, theft, leadership interruptions, cash flow shortages, and the long-term impact of the pandemic. For each event, an analysis should be made as to how it will affect the business and what possible outcomes could occur. This part is also called a Business Impact Analysis.

Recovery Strategies

Once you’ve identified impacts, the next set of questions covers how to most effectively recover from them.  These remedies might include seeking additional financing, selecting backup locations, checking IT department functionality, creating alternate supply chain and distribution sources, and identifying many more actions along these lines.

As we’ve seen this year, this is just as important to think through for small businesses as it is large businesses.

When owners and employees are not in the middle of an actual disaster, they can better map out a recovery strategy that’s optimal and cost-effective for the business.

Implementation

A good plan should be implemented through distribution, testing, and training. All stakeholders should read and understand the contents of the business continuity plan. The plan should be tested in drills and exercises when possible. Employees should be trained so they know their part and feel comfortable carrying it out while under high stress.

The long-term viability of your business is important, and it can be strengthened when you put a business continuity plan in place.  If we can help, feel free to reach out any time.

18 Small Business Opportunities in 2020

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Deciding on the kind of business you want to start is a very big decision. Some require specialized skills that either the owner or employees will need. Others require a substantial initial capital outlay. In any case, it’s always a good idea to consider the health of the industry you’ll be entering in.
While we are not giving any kind of investment advice in this article, we thought it’d be fun to list the business ideas that will be recession-proof in 2020, many of which were also fast-growing in 2019. They are not in any particular order.
1. Bicycle shops
Demand for bikes ramped up this year when people started staying at home due to shelter-in-place orders. They saw the need to exercise close to home, and a bike is the perfect accessory to get people out of the house safely.
2. Building services
This group includes businesses that provide services like office and home cleaning, landscaping, and pest control. New demands in cleaning will continue for some time.
3. Software development
Businesses with skilled developers are in demand as other businesses look to automate more and more of their processes. Workers with skills in artificial intelligence and virtual reality are in very high demand. In 2020, we added a huge demand for video conferencing tools, and other tech tools we need to work from home.
4. Online publishers
While the traditional print media such as book publishers and newspapers are declining in growth, online publishers are thriving. This category includes bloggers as well as the internet stars on YouTube that are making great money through online ads and product endorsements. The fast pace of the news in 2020 has simply accelerated this trend.
5. Building finishers
This category includes construction companies that provide drywall, painting, and flooring to finish out a building or house. Th need will continue in 2020 as offices, shops, and other businesses remodel to meet social distancing and other safety rules.
6. Outpatient care
An alternative to going to the hospital emergency room, these care facilities are growing fast. For patients, they are less hassle than making an appointment with a doctor and far less expensive than ER bills. Once tests and treatments for COVID-19 become universal, these places will become good alternative for people with mild symptoms.
7. Administrative services
There’s a growing need for businesses that need additional administrative support beyond what employees can provide. Virtual assistants are included in this category as well as staffing companies that provide temporary clerical workers onsite.
8. Physicians
If you’ve ever been in a doctor’s office waiting room full of people, you know that this area is in demand. This include offices of physicians of all specialties.
9. Professional drivers
Professional drivers fall into two categories: truck drivers and delivery/taxi services. The demand for truck drivers is always increasing as online orders and ecommerce steadily grows. Many of these drivers are independent and own their own rigs as well as their own businesses.
Uber, Lyft, GrubHub, and DoorDash, to name a few, have increased the demand for professional drivers who can deliver food, medicine, or people to where they need to go.
10. Data processing
The demand for data hosting, server farms, and data processing continues to grow as our appetite for technology increases.
11. Warehousing and storage
Places like self-storage facilities will be in demand for a couple of reasons. Families have more stuff than they have room for. And as families continue to be mobile, they will need temporary storage space. All you have to do is look on your street at all the cars that don’t fit in their garages to see the demand in this type of business.
On the commercial side, increased ecommerce demand and the need for pickup and delivery services has increased the need for warehouses for businesses in the distribution space.
12. Construction
In most places, construction is booming, so there is a demand for general contractors, subcontractors, architects, engineers, and businesses that support construction.
Architects should be busy re-designing spaces, such as offices, restaurants, nursing homes, day care centers, and jails, to name a few, to keep people safer.
13. Medical and diagnostic laboratories
Even before COVID-19 came on the scene, this type of business was growing fast for several reasons beyond standard medical test ordered by doctors. People are getting DNA tests on their own, and nutritionists are doing more testing as people realize diet is a huge factor in health and personal energy.
Now that COVID-19 diagnosis and treatment require a variety of tests, these labs will be busy for a long time in the future.
14. Ecommerce wholesalers
There is a growing number of people who sell items on ecommerce platforms such as eBay and Amazon. While a few source these items through agreements with manufacturers, many visit flea markets, donation centers, and resell shops to make their purchases and repurpose the items.
Smart wholesalers that have their systems set up can help brick-and-mortar shops without an ecommerce presence sell their items while they are shuttered.
15. Professional services
Fields that are fastest-growing include technology and marketing consultants. An interesting new type of security consultant is one that trains groups on how to deal with violence in the workplace and schools.
Attorneys are busy helping individuals update their estate plans and will likely be busy with divorce filings after COVID-19 has let up some. Accountants have new laws to communicate to their clients, and many small businesses want their books caught up now.
16. Educational services
This broad group include elementary and secondary schools and junior colleges. It also includes adult career education, including businesses that teach trades skills, computer skills, and business skills.
Companies that provide an online component to learning will be in demand for quite a while.
17. Real estate agents
Competitive, yes. But the average home sells twice as fast as it did eight years ago, so the number of transactions have doubled, increasing demand.
18. Personal services
While a broad category, the areas seeing growth include personal trainers, personal nutritionists, and wedding planners, to name a few.
If your business falls into one of these categories, congratulations. If you’re considering starting a business and you have the skills needed to start one of the businesses above, what are you waiting for?

The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps

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Have you been thinking about starting your own business? Being your own boss is the dream of many people, and every year, thousands of people take the courageous step of becoming an entrepreneur.

If you are thinking of starting a business or have already started a business, here is a detailed checklist of items to consider to get your new business off to a great start. 

1. Make a plan.

There are a lot of moving parts to a new business! You’ll want to get organized (or get some help becoming organized if this is not your skill) and think about how some key functions in your business will work.  Some of the topics and/or questions to consider when developing your plan include:

What will you sell? 

We’ve found there are really two types of entrepreneurs.  The first is someone who knows exactly what type of business they want to be in because they have a skill set or background in it. They have a good idea of what they want to offer the marketplace. 

The second type of entrepreneur is one who simply wants to be an entrepreneur. They may look for a franchise that already has some structure to it or a business to purchase where the owner is retiring or simply wants to sell. They don’t really care what products or services they sell, they just want a successful business to run. 

Who will you go into business with?

Do you want to start a business by yourself, or do you want to find a partner? Many people start businesses as solos and then add partners or merge with other businesses to grow or expand. Everyone is different, but it’s something you need to work out before you get started. 

You’ll also want to consider how you will build your management team.  Initially, it can be yourself along with vendors you hire like accountants and attorneys that have skill sets that you don’t. As you grow, you’ll need people to head every function in your business, such as Sales, Marketing, Finance, Operations, Human Resources, IT, and Strategy.  

Who wants to buy what you are offering?

Is there an established market for what you intend to sell? Or do you have something that is one-of-a-kind? What competition do you have, and why will your offering stand out? 

To answer this question, you’ll need to perform a market analysis that will help you see if you have competition or if you are blazing a new trail. From there, you can plan your marketing and sales activities so that potential customers wll be able to find you.

Will you be able to generate a profit?

Almost anyone can start a business, but making a profit requires planning, preparation and skill. That’s why you’ll want to crunch your numbers to make sure your business is viable. You may need the help of an accountant or financial consultant to help you complete your plan.

What is your company?

Take a crack at describing your new company. This may be the start of your mission, vision, and values statements as well. 

Once you’ve answered these basic questions about your business, you can write it up and put it all together in a business plan. The last step is to write your Executive Summary, which will go at the beginning of the document. 

You don’t have to write a business plan unless you need one to find funding, but the entrepreneurs who do have an increased chance of surviving their first few years. 

2. Make a budget.

A budget clarifies the financial aspects of your business.  How much overhead will you have? How much startup cash do you need? How much revenue will you need in order to sustain your business on an ongoing basis? 

In addition to a budget, think about how you want to measure your financial results on an ongoing basis. What metrics do you want to know about on a monthly basis?  What reports would be useful for you to make good business decisions about opportunities?  These answers may not be clear when you first start, but they will become clearer over time, and a good accountant can guide you along the way.

3. Choose your organizational structure.

Should you choose a sole proprietorship to keep down initial costs, or should you incorporate your new business? There are many choices when it comes to entity selection for your business, and they vary state by state. The most common ones include sole proprietorship, partnership, limited liability company, S corporation, C corporation, and nonprofit. These choices have both tax and legal consequences, so this decision is best made with the advice of a professional attorney, CPA, or both.

If you incorporate, you’ll need to select the state you want to do business in and file incorporation papers with the proper state agency. But before you do that, you’ll need to name your baby!

4. Name your baby.

Your new business needs a name, and this can be an exciting step! It’s important too. The business name is the first item that displays your company culture and your business identity to the world.

Once you’ve decided on a name, you should register it with your local county. In some states, this is called an Assumed Name; in others it’s referred to as a Fictitious Name or DBA. You may also want to trademark your business name; this is done at the national level by industry.

5. Get an address and phone number.

Will your business need a physical location?  In this step, you’ll need to decide what address and phone number you’ll use for your new business. If you work at home, you can always get a mailbox at a place like Postal Annex, The UPS Store, or even the post office.  This won’t always work for a street address, but it’s something you can put on your marketing materials so your business looks more permanent.

Choosing the phone is important too. A cell phone alone is not really high enough quality for a business, but many people start out this way.

6. Get an IRS number.

If you remain a sole proprietor and don’t hire any employees, you can use your social security number as the number that the IRS needs for filing your taxes. In other cases, you’ll need a different tax ID number from the IRS.

You’ll need this number for several things, such as filing income tax return, filing payroll tax returns, opening bank accounts, and getting paid in some cases.

You can now complete a form online to get an IRS number.  This page from the IRS.gov website explains more: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

7. Open a bank account.

Once you have your Fictitious Name document or your incorporation papers, you can open a bank account for your business.  This is a big step too, and a good time to start involving an accountant. 

8. Find an accountant.

You may have already have enlisted an accountant to help you with your business plan and budget. But if you haven’t, now is a good time. You’ll need to make many decisions regarding the accounting functions in your business, such as:

  • Selecting the accounting system you need and getting it set up correctly to record and track your accounting transactions.
  • Getting help with federal and state tax requirements, including collecting state and local sales tax if applicable.
  • Getting help setting up accounting processes such as invoicing customers and collecting money.
  • Getting any financial questions answered that you may have.

9. Get insurance.

Protect yourself and your new business by making sure you have all of the right insurance policies set up.  Here are a few areas for you to consider covering with insurance policies:

  • General liability
  • Building and property coverage
  • Errors and omissions
  • Workers compensation
  • Umbrella
  • Auto insurance
  • Identity theft

10. Hire an attorney.

An attorney will come in handy when you first start your business as well as act as a resource when legal issues arise in the normal course of business. Initially, there are many legal documents to set up:

  • Contracts with customers
  • Terms of agreement for your website and any other client-facing applications you may provide your customer
  • Privacy policy
  • Employment offer letters and agreements

You may also want an attorney to review any vendor or partner contracts that you will be a party to.

11. Get paid.

How will you collect money from your customers?  You should have opened your bank account already (see #7 above), so you can get paid when someone writes you a check. But that’s typically not enough options to give your clients. They may want to pay you via credit cards, PayPal, or even bitcoin.

To take credit cards, you can start with PayPal for business, but eventually, you will need a merchant account, which enables you to accept credit cards from your clients and get paid via your bank. Applying for a merchant account is similar to applying for a loan.

If you use QuickBooks, you may be able to collect money through Intuit’s payment options. You might also be able to collect money via your point of sale system or your online shopping cart software. Let us know if we can help guide you in this area. 

12. Get specialty and local licenses.

Depending on the type of business you have, you may need additional licenses and permits to operate. For example, if you plan to serve alcohol, you need a liquor license. If you’re a hairdresser, you need a cosmetology license. 

You may also need local licenses to operate in your county or city.  Check with your local city or county offices to see if a business license is needed.  Even if you are operating out of your home, you may need this kind of license. 

Starting Your Dream

Hopefully, these twelve steps will make your entrepreneurial journey a little smoother so you can begin to accomplish your lifelong dreams of owning your own business.

If we can help you along the way, especially with your accounting, tax, and business advisory responsibilities, please reach out any time.

Download the PDF version of “The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps” here.

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