When we think of cash flow, many business owners think of expense reduction and then they think of one of their biggest expenses—employee salaries—and begin to look for ways to reduce payroll expense. That can backfire on you.
Here are ways to right-size employee expense and manage cash flow without downsizing employee salaries.
1. Insure Your Pay Rates Are in Line with Similar Jobs in the Marketplace
I can’t tell you the number of times I’ve seen a too-high salary being paid usually to someone who’s been with the company a long time. If you have this situation, explain it to the employee, show them the data, and slow or discontinue annual raises until the market catches up to their salary. Make sure your future hires are paid the market value of the job.
2. Know Your Staffing needs at a Detailed Level
Determine when the work peaks and valleys are, then match your staffing hours to them. Work flow should dictate how many hours you staff for versus what’s considered “normal” work schedules. Your peak work flow is often not strictly Monday-Friday, 8-5, so your staffing shouldn’t be either. If you plan this well, you have people there only when you need them, you won’t have staff under-utilized (waiting for work), and you won’t have need for overtime.
3. Let Under-Performing Team Members Go
Too often business owners keep under-performing employees too long. An employee who’s unable or unwilling to perform the job to the highest standard costs you tons of money and contributes to a negative cash flow. You’re not doing your business any favors by keeping them on the payroll and more importantly, you’re not really doing the employee any favors either. Chances are, they’d be happier working for someone else and lack the courage to make the change for themselves. If you’ve made the goals clear, have had performance review conversations and they’re still under-performing, it’s time to let them move on. In almost all cases I’ve witnessed, the employee found a better fitting job somewhere else.
4. Negotiate Employment Agreements for Salaried Team Members
To attract and keep good people, you have to offer them something worthwhile. Negotiate every contract like it’s a business deal. Find out what motivates the person—often it’s a little extra time off or a flexible work schedule vs. money. Minimize the base salary while increasing the profit performance bonus. A salaried person’s pay should be tied to the value they create for your business whenever possible to ensure that they focus on producing the outcomes that make the business successful. It also means that they’re not paid unless they’re creating that value – just like a business owner.
5. Create Incentives Based on Margins Why should you be the only person concerned with margins and cash flow? Your team members can assist you, particularly if you make it worth their effort. So, offer them an incentive based on margins. Say you have standard and discount prices. Pay your sales team members a higher commission on anything they sell at full price. All team members need is a clear understanding of what the margins are. Offer a larger percentage reward for sales made at full margin.
6. Allow Your Team to Buy Only with an Authorized Purchase Order
This way you can keep track of any money that’s being spent. It isn’t because you don’t trust your team, rather it’s a way of getting them to ask, “is this really necessary?” to ensure that company money is only being spent on essentials. This is crucial for effective planning and prudent accounting too.
I’m happy to spend a little time reviewing your cash flow issues. Click here to schedule 30 minutes and we’ll how many solutions we can generate to improve your cash flow.
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