Posts Tagged ‘pay’

9 Tips to Improve Yourself and Your Business

May 2, 2011

by Doug Smith, President, The Woodhaven Group, LLC.

As an owner or key person in management you must grow your business and increase the cash flow needed to achieve the goals of the company.

I have found most owners do a good job of addressing both the short and long-term needs of the company.

However, there is one area that usually does not get addressed. That is the failure of the key person to take care of himself.  If the top person does not take care of himself then the success of the company is in jeopardy. I know.  I have been there and learned a few tips I want to share:

  1. Maintain good mental health:  It is too easy to get fixated on day-to-day crisis management.  At some point this can affect your ability to focus and solve problems.  The best solution I have found is to have friends outside the business that you can use to unwind with.  It might be a weekly golf outing or attending a ballgame.
  2. Maintain good physical health:  This means exercise.  Not only will exercise help keep the blood pressure in line, it will also help alleviate stress.  The best way to exercise is to treat it like a meeting.  Schedule it into your day at least 3 times per week.  Also, don’t forget that annual checkup.
  3. Educate yourself:  This can be on business or nonbusiness topics.  If nothing else, we all can spend time staying current on how the latest developments in internet marketing affect our sales!
  4. Pay yourself first:  You deserve to make a fair return on your time, effort and risk that you are taking.  Pay yourself enough dollars that you have money left over to spend on something frivolous for you or your family.
  5. Set aside dollars for the long-term:  Make sure you are allocating money for the long-term needs of your family such as retirement or that vacation home.  Your company has long-term goals that need funded.  You should also have personal long-term goals that get addressed.
  6. Stop beating yourself up:  There has not been a CEO or owner yet that is right all the time.  Stop stressing over that past decision that did not work out.  Keep looking to the future.  You will more than make up for old mistakes with the wise decisions you will make going forward.
  7. Hire the best, pay them, and get out of their way:  Do I need to repeat that?  Make your job easy by hiring people better than you are.  That means you will have to pay those key people good money and then do not micro-manage them.  Some of the most fun I have had as a CEO is watching managers develop and being there to help them when they stumble.
  8. Don’t procrastinate! Make the decision:  Failure to make a key decision such as closing a branch or letting someone go can hurt the company, sap cash flow that is needed for projects to grow the company and destroy morale.  For the good of the company, don’t put off doing what has to be done. It goes with the job title.
  9. Ask for help if you need it:  Many owners and CEOs let their pride get in the way.  If you are not getting the results you need ask someone from outside the company to help.  It might be another CEO, a consultant in your industry, or a retired business owner.  They can take a fresh unbiased look at your problem.

Remember, your business can not grow if you are not on top of your game.

Take care of yourself while taking care of your company.

 These tips have worked for me. I would be interested to hear from others who may have tips to add to this list.

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Use A Collection Attorney For Delinquent Accounts Receivable

May 11, 2010

by Doug Smith, President, The Woodhaven Group

You performed the service for your new customer as spelled out in your contract.  Your management team even did a few things at no charge to make sure this client was happy.

Now it is time for this customer to fulfill their obligation and pay the invoice in full.  Instead, no payment as agreed.  Promises to pay are not kept.  There appears to be no attempt on your customer’s part to work out a reasonable solution.

It is now 60 days beyond the final due date.  Your company deserves the cash from this customer.  You have made sure to pay all the bills in full allocated to this project.

The new question now becomes, do you send this account to a collection agency or to a collection attorney?  There is no hard and fast rule but I know which I prefer.  I will take a good collection attorney every time.

First, I assume the collection is not small which qualifies for small claims court.  Once I have determined that then here are the thoughts that guide me to using a collection attorney:

  1. Without question a letter from an attorney’s letterhead carries  more weight and stands out from the run of the mill collection agency form letters the deadbeat client is probably already receiving.  My attorney’s letter will move to the top of the heap.
  2. If the situation eventually does go to trial then I have had the same person on the account from the start.  There is no hand off from a collection agency.
  3. In my opinion, a good seasoned collection attorney should have more experience and insight into the process of collecting from an account than a  just hired account manager at a collection agency.  My experience has shown that good collection attorneys come across as professional and better able to structure a solution that works for everyone.  However, a good attorney can also go win in court if it becomes necessary.
  4. I have always felt comfortable knowing that with a collection attorney I have someone who knows the law and would not do anything to jeopardize his standing in the local legal community.  In otherwards, there are no legal or ethical shortcuts I need to worry about.
  5. By giving the attorney all of my delinquent accounts he will be committed to seeing every delinquent account through to resolution.

I have heard the one downside to using a collection attorney is that it costs more than using a collection agency.

I personally have not found that to be the case.  Instead, I believe the attorney collects more money more efficiently.  Some attorneys charge by the hour and some by the hour plus a percentage of dollars collected.  I have negotiated a straight percentage (30%) and due to the steady volume given the attorney it has worked well for both sides.  Sometimes one letter collects the full amount and other times he has to go to court. 

Some businesses prefer using a collection agency.  That is ok.

But for me a good collection attorney was like a valuable member of my management team.  Why?

Because he delivered the cash!

Consider Early Pay Discount To Increase Cash Flow

May 9, 2010

by Doug Smith, President, The Woodhaven Group

Many industries have a traditional preset discount off the invoice for paying early.  As the customer I used to take advantage of an 8% discount if I paid my supplier by the 10th of the following month.  The invoice was due, otherwise, at the end of 30 days.

As a provider of a product or service your business may want to consider implementing an early pay discount. The discount may only be 1-2% but will be enough to entice some customers to pay early.

The key decision for your company is balancing the bottom line profit impact against the potential for increased cash flow from your customers.

Here are some thoughts to guide you in your decision making:

  1. Does your industry currently offer a discount for early pay?  If not, then this could be a way for your company to differentiate itself from the competition.  The result could be added sales as the early pay discount is perceived as added value by your company and you can steal marketshare. The fact that the customers you acquire would have strong cash flow (evidenced by the ability to take the discount) would be a plus. 
  2. An ongoing argument against early discounts is its potential negative impact on profits.  Can the discount be passed on as a price increase?  Your customer may not balk at a 1-2% increase in prices if it has been some time since the last increase and you provide a high quality dependable product.  If you are concerned about implementing a price increase at this time  then wait and piggyback the increase on top of an increase in price in the future.
  3. What is the interest cost to your company to currently fund  accounts receivable?  This should be factored into the profit computation.
  4. Also, determine if there is operational savings realized by having less accounts receivable to collect due to accelerated payments.
  5. Not everyone will take advantage of the early payment discount.  For those who do not, if a price increase is in place to support the discount, then your company just realized more gross margin dollars and percent.
  6. You cannot let a customer pay late and take advantage of the early pay discount.  An aggressive accounts payable manager will attempt this if you do not catch it and cut it off.  Assume this will happen.  
  7. Invoices need to be received at the same time the product is delivered so that your customer has time to process the early pay discount. You do not want to give your customer an excuse for taking the discount late.  
  8. Your best creditworthy customers will take advantage of the discount.  Prior to your company offering a discount your customer was most likely aggressive in delaying payment as long as possible to preserve their own cash.  The trade-off, as discussed earlier, is faster availability of cash for your company back against the discount cost. 

Which is the best way?

In my opinion, I want to find a way to make an early pay discount program work with a minimal cost to my profit.  I believe the quicker I can get use of cash the faster I can put it to work and  the greater potential there is to increase my overall return on investment.

I would be interested to know what your experience has been.

The Best Employee Reward?

May 8, 2010

by Doug Smith, President, The Woodhaven Group

Have you noticed how often the same individuals get all of the awards, bonuses and free trips in a company for a job well done.  I certainly do not fault them their recognition and rewards.  As a CEO I structured many of those incentives in order to get results I wanted to see.  It usually worked.  We got more profit, marketshare, and cash flow.  It was nice.

But over the years I also noticed and appreciated the efforts and indirect results that others in the company working behind the scenes accomplished.  It was hard to directly measure their individual contribution but I knew they were critical to our success.

We would recognize these individuals at some year-end dinner or event but it never seemed to be enough.

So I started doing this.

From time to time and totally unannounced I would bring a behind the scenes contributor into my office and say something like this, “I just wanted to personally thank you and tell you how much I appreciate what you do everyday.”  I would give an example of something they recently did and why it was important to the success of the company.  Then I would tell them as an added thank you the company would like them to take a day off with pay.  Sometimes I made it 2 days off with pay.  Often the day off (their choice) was taken on a Friday or Monday so the employee got a long weekend.

I found this accomplished a few important goals.  First, it recognized a key loyal employee and showed them they were appreciated.  Second, it showed that as a business we recognized there is a life outside of work.  Finally, I found that this key contributor came back even more energized and committed than before.

Does this contribute to increasing cash flow?  You bet it does!

Will you find this spelled out in some MBA course on employee development?  Probably not.

Oh, and one other thing.  I gave the employee a $100 to spend anyway they wanted on that day off.

Key Supplier Relationship Will Increase Cash Flow

May 3, 2010

by Doug Smith, President, The Woodhaven Group

The relationship between a key supplier and customer can be like family.

Executed correctly this relationship can profitably grow the sales and profit of both companies.

As you become more important to your supplier here are a few tips that can act as a guide to increase the amount of cash available for you to grow your business:

  1. Ask for and get extended terms on each invoice.  Once established you should not have to pay the same terms as a new customer of your supplier.  If 30 days is normal then ask for 60 day terms.
  2. If you have inventory make sure your supplier exchanges slow-moving inventory units for what is being used or sold the most.  This should be done a minimum once every 6 months, preferably once per quarter.  In some industries it makes sense to do it once per month.  Show future sales projections so your supplier can justify taking this action. 
  3. When the above inventory is returned make sure there is no restocking charge applied.
  4. If your business is seasonal, you may want to negotiate paying less during the slow months and more during the busy months.
  5. Have your supplier fund the purchase of a major capital item you need to buy to grow your marketshare. This may be a new piece of equipment needed in your manufacturing facility that will allow you to be more productive.  The payment can be spread over a multiyear term with a small amount added to each unit of inventory purchased from your supplier.
  6. Once you have become a major customer or “partner” of your supplier negotiate putting the key items being bought on consignment in your facility.  This inventory remains on the books of your supplier until you are ready to “pull” them for use in manufacturing.  Only then does the terms begin on your invoice.  If you combine consignment with extended terms then your cash flow really explodes.  To properly execute a program like this requires the use of security agreements and physical inventories but the cash savings is worth it.
  7. Negotiate additional advertising coop and simplify how it is processed.  Many companies offer a marketing rebate or credit to their best customers but then make it almost impossible to get due to extreme rules and regulations.  If possible, agree in advance on an advertising coop amount and deduct a fixed amount each month from invoices.  At the end of the year you can reconcile any differences.
  8. Ask for a price decrease.  You may be surprised how often a supplier will grant this wish to a major customer.  They realize the cost to acquire a new customer is high and realize your increased margin dollars over time will make up for a 2-3% drop in price.
  9. If you cannot get a price decrease, then get an agreement that the price either will not be increased or will be increased only by no more than a certain percent for a specific period of time.
  10. Regardless how great the relationship is and regardless how many concessions you are given, you need to still periodically compare prices in the market place.  If not locked down  prices can start creeping up.  There should be an understanding in a good relationship that you are always getting the best price possible.

Suppliers can be a great source of cash flow.  I have successfully used every one of the tips mentioned here.

A lot of the cash or money used to grow your business can come from well executed cash flow strategies.

This is one of them.

Pay For Performance Can Increase Productivity And Business Cash Flow

April 27, 2010

by Doug Smith, President, The Woodhaven Group

When a company improves productivity a positive result should be an increase in business cash flow to invest to grow the business.  Pay for performance compensation structured properly can be a driver of productivity.

There has been a trend for some time to reward those individuals who deliver the best results by shifting from straight salary to a lower base pay with some kind of incentive attached.

The intent is to not over pay nonperformers and give the top performers an opportunity to earn more than they were making before.

Many sales forces are used to being paid 100% commission.  That means no sales, no pay.  That also means reduced overhead for the company when sales are slow.  But what about other areas of the company that traditionally are not on pay for performance?  My experience has shown that you can often direct the outcome you desire by compensating an employee on results they can impact.

While 100% pay for performance will not work with all positions, a portion of some of the compensation for certain key people can be based on incentives.  

A few examples:

  • Make 10% of a retail store managers pay tied to reducing shrinkage.  They cannot stop all theft but they can reduce paperwork errors, a contributor to shrinkage.
  • Tie 20% of an accounts receivable manager’s pay to a positive change in days outstanding of accounts receivable.
  • Make a portion of a marketing manager’s pay tied to a reduction in marketing  % against net sales.
  • If customer service has been a problem tie 15% of a fulfillment manager’s pay to a reduction in customer complaints or an increase in repeat purchases.       

You get the idea.  Once you start doing this a next step can be compensating a team of individuals sharing a common goal.

Certain key points need to be kept in mind:

  1. Clearly define measurable goals when using any pay for performance.  Do not make it subjective.  Make sure the employee agrees the goal is attainable.  If the goal is too far out of reach the employee will give up and morale will go down.
  2. Make it clear you are rewarding measurable results and not effort only.  While everyone’s extra effort is expected and appreciated,  it’s the cash flow from increased results that pays the bills.
  3. Show the employee how much he or she can make if the goal is attained.  Then work with them to identify tactics and action steps to be taken to hit the goal and earn the extra income.
  4. Have  meaningful inital and ongoing  coaching sessions  to help the employee hit their goals.  In the beginning some employees may think the company is using this type of compensation to just reduce pay.  Actually, a well put together  incentive compensation program is a win-win.  The company does better and the employee earns more.
  5. Attempt to pay the incentive compensation each pay period.  If that is not practical then pay at least once per month.  The faster you can pay for the results achieved the more motivated your employee will be. 
  6. If the employee challenges the accuracy of the incentive calculation stop everything and verify that it is correct.  If it is not, then cut a new check immediately.

Well structured pay for performance can drive productivity, increase cash flow and retain top performers.

Employees in successful pay for performance programs never want to go back to only a salary or hourly pay.

Give it a try to see if it works for your company.