We’ve helped two clients out recently who started out in business, were successful, took on staff and found themselves a year later with lots of sales but much reduced profits – with key (supposedly trusted) members of staff earning more than the owners.
How does this happen? And how can it be avoided?
The point of his blog isn’t to make you as a business owner paranoid about your staff.
It is more of a lesson about how to manage a successful growing business. As a business thrives, owners have to choose what to delegate and what to do themselves.
A lot of owners stay working in the business and end up effectively delegating the running of the business to staff who don’t have the same goals and motivation as they do.
With the best will in the world, staff are not necessarily focussed on the same thing as the owner. For many staff, as long as they are busy and getting paid their needs are mostly met.
Likely the owner has sweated blood to make the business successful and only gets paid if there are profits made. That’s what had happened with the two businesses we helped with. Turnover had grown but profits had fallen and almost disappeared in one case. When we asked who was bringing in the work we found it had been delegated to staff with little or no oversight and who were not focussed on profit.
Thankfully, the owners concerned had decided that a chat with their accountant (us!) would be a good idea and we were quickly able to identify the problem which prompted immediate action from the owners.
So what is the key to avoiding this?
Easy. As your business becomes more successful, focus on managing its performance.
Performance is best objectively measured in numbers by its monthly management accounts.
What gross and net profit margins is the business making and who is bringing in the work if it isn’t the owner?
Most accounting packages such as Xero and Quickbooks virtually produce monthly management accounts without much additional effort, so it’s not a big deal.
Also, owners need to appreciate the value of their own focus, attention and time on meeting their goals.
As a business becomes more successful more time must be allocated to working on it rather than in it. Make sure you consciously delegate tasks to individuals or suppliers rather than letting it happen by stealth and implement Key Performance Indicators to monitor their effectiveness.
The other thing – it was quick and easy for us as their advisors to see what had happened. The cost of a quarterly meeting with your accountant could save you a lot more cash and avoid pain and heartache.