SI Review: August 2011

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Invest Wisely

Managing costs as your business grows

By Tom Kosnik

Congratulations!

If you are reading this, you have probably made it through the Great Recession, and have the scars to show for it. The economy is picking up slowly. You have business items that you need to take care of that have been on hold. As your business recovers and expands, you’ll have to make some investments. Expenses will grow. Here are some tips to help you be financially savvy and expand without over-loosening the purse strings.

Employee Expenses

Employee salaries and commissions are typically the largest expense on staffing firms’ financial statements. Offering big base salaries to acquire sales execs and recruiters is not a good idea. So be sure to do your research so you know you are paying competitive, market rates. It would be a disservice to your business as well as employees to overpay them.

And when it comes to commissions, get creative. Most plans in the industry pay commissions based on gross profit production, and that’s a good idea. But also include an activity commission. What are the performance drivers? We know what they are: face-to-face meetings, referrals, networking events, interviews at the client site. Figure out what makes sense to focus on for your business and pay a sliding-scale success commission for employees hitting certain revenue-driving activity.

To address concerns about entitlement mentality, or employees relaxing once they see a little light at the end of the tunnel, pay double commission on the first three months on new accounts. Kick in weekly or monthly contests. Such financial rewards do not have to be big in order to make the right kind of impact for your organization. If these techniques don’t work, then terminate the low-producing and lazy employees.

Social Media Training

If your sales execs and recruiters are not LinkedIn and Facebook experts, then your people and business are behind the competition. Many staffing firms have managed to cut their job board expenses in half by training their reps and recruiters to fully utilize these and other social media tools. Allocate some dollars toward social media training and cut job board expenses.

Social media can also help on the sales end. This is not rocket science. Talk to hiring managers to find out what keeps them up at night. Discover their business concerns. Based on what you learn, write — or hire out the writing of — some related value-added articles and get them posted at sites where hiring managers in your sector frequent.

And be sure to blog. It doesn’t cost you anything and it’s a great way to get your name out there. Marketing experts suggest that there is no other social media activity that will benefit your company more than blogging.

Offshore or Outsource

Why have your top sales reps spend two or three hours a day making phone calls? With the current ratios of one connect for every 20 calls, that’s a lot of time being wasted. Such a task can easily be sent offshore or outsourced to an appointmentsetting call center. A s/b $12-an-hour appointment setter will free up that talented sales rep to double face-to-face appointment output.

The same approach operates on the fulfillment side of the house. Why have a senior recruiter source résumés off the Internet when that work can adequately be completed from anywhere in the world? Sourcing and initial recruiting calls are conducted by rookie recruiters while senior recruiters focus on final interviews, negotiating pay rates, obtaining leads for the sales team, etc.

Overspending

I hate construction on the highway, especially when the highway goes down to one lane for 10 or 15 miles. Do you know what most people do when they come out the back end of the construction zone? They go 90 miles an hour for about 10 minutes or so — pent-up frustration, I imagine. Well, business owners do the exact same thing with their business. They come out of a recession and they overspend for a few months. Not good.

The urge to overspend immediately after a recession has to be curtailed. Having a budget will help a lot. Think through new expenditures on the front end with a budget, and use the budget to make spending decisions. The notion of hiring employees on a whim or opening in a new marketplace over the weekend really hurts the business.

Another dynamic of managing overspending has to do with thinking through your business model. Does opening in new markets really require a $250,000 investment? We tend to think in only a few business models. Either there is the tactical ground war where a rep is hired to work out of their home or there is the splash model where four people are hired and office space is leased. Is there a more cost-effective business model to get into new markets?

Financial Modeling

A strong financial model will first set revenue, gross profit/margin and net income goals. Then the financial model will determine adequate expenses that come out of the gross profit. For example, the sales expense may be allocated for 25 percent of the gross profit and the recruiting expense may be 20 percent of the gross profit and the general and administrative may be 25 percent of the gross profit leaving 30 percent of the gross profit for net income. Good financial modeling will then track these expenses on a monthly basis to ensure financial health.

Prudent financial modeling will also clean up the balance sheet of the business. What does this mean? It’s not uncommon for small business owners to put money back into their business to keep it afloat in very bad times. These monies are allocated on the balance sheet as a loan from the owner. Sometimes, staffing companies also will use their line of credit for more than financing receivables. In the end, it is poor financial modeling. As a result, the balance sheet becomes upside down, meaning that the money the business owes is greater than the value of the business. Not good.

Capture Wisdom

An old timer in the industry once told me that his best lessons were learned in a downturn. Namely, that he learned to manage the business so much more wisely in a downturn than in a robust time period. When things are going well, it becomes easier to not be so financially prudent with the business. When things are going well, it becomes easy to fall into the “if it is not broken don’t fix it” attitude. Good times, in many ways, make us a little lazy. This is a trap.

Downturns in the economy are never enjoyable. But downturns can create an environment where our most creative learning occurs. And this is what we call wisdom. Now that the economy is improving and investment decisions need to be made, don’t just go back to the old models. Rather, put your wisdom to use.

Now that you’ve survived the recession, there are a few a ways to go. There are those who might be tempted to fall back into their old ways. Or others who go around being zealously stringent. Both behaviors have a downside. Now is the time to review your compensation plans, freshen up your marketing efforts, and invest appropriately to enable your business to thrive in the upturn. With care and consideration, you can make every dollar spent count.

Tom Kosnik helps staffing companies improve employee performance, corporate revenue and net income profits. He can be reached at (312) 527-2950 or tkosnik@visusgroup.com.

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