As accountants, we understand the significant impact that employee turnover can have on a business’s bottom line. While high employee turnover is certainly an inconvenience, this pattern also comes with financial consequences. High turnover rates can lead to increased costs, decreased productivity, and even long-term damage to a company’s reputation. Keep reading to learn more about the financial implications of having high employee turnover in your business, and what you can do to help mitigate the issue.
The Costs of High Employee Turnover
To control the costs, we need to identify them first. Here’s a list of the most common costs associated with employee turnover.
- Costs of replacing an employee through the hiring process
- Job listings on Indeed, retaining a headhunter, etc.
- Time spent screening resumes, scheduling interviews, and interviewing candidates
- Paying to run a background check
- Signing bonus, if applicable
- Time spent onboarding a new employee, including setting them up in payroll, IT, HR, setting up equipment, purchasing business cards and name tags, and more.
- 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 employees learn the ropes
- Extra supervisory costs monitoring new employee
- Vacancy losses
- Costs of overtime while remaining 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
It’s clear that replacing an employee comes with financial costs. In fact, a recent study performed by Gallup suggests that replacing an employee costs a business one-half to two times the employee’s annual salary. So, what can you do to reduce this loss in profitability?
- First, analyze your company culture. Would you describe it as more positive, or are there toxic elements to it? Has the culture changed in the past year? Two years? Are employees citing burnout as a reason for their departure? Lack of opportunity for advancement? Ineffective management? Find out your weak links, and determine a plan to correct them. And remember: a pizza party won’t fix your company culture.
- Review your pay package. Consider paying slightly more than your competitors or providing above-average benefits for your employees. These don’t have to be expensive; we have an entire blog post on benefits that are less expensive yet more valuable to employees that you can find here.
- Consider overstaffing to release some of the pressure employees may be feeling.
- Automate and streamline your hiring process. Having a more efficient process can keep hiring costs down when you do need to hire.
- Hire slow, fire fast. If you do have a team member who is dragging the rest of the team down, you may not be the right fit for each other.
- Train your first-line supervisors and managers to be excellent bosses. People skills and supervisory skills do not normally come naturally but can–and absolutely should–be learned. Many voluntary terminations occur because people dislike their boss.
- 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.
- 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.
- 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, but your accountant can help you do a cost-benefit analysis to determine which of these approaches seems best for your business situation. You can spend money to improve employee retention, or you can spend money hiring a replacement.
Three Vital Business Roles for Success and Balance
A passionate visionary, a get-your-hands-dirty operator, and a responsible, finance-minded executive, are what author Chip Conley describes as what investors look for in a management team when they consider providing startup money to new businesses, in his book The Rebel Rules: Daring to Be Yourself in Business.
Even if you’re never going to seek venture capital money to fund your business, this tidbit of advice makes a great strategy question to consider for your business, especially if you are an entrepreneur. Do you have these three roles in your company?
If you’re not sure which leadership role you play or who plays what role on your team, consider reading Predictable Success by Les McKeown and taking the quiz at https://getpredictablesuccess.com/styles-quiz/
The passionate visionary is a creative idea person. They have the technical knowledge that supports the service or product that will be created and offered. They see the market need, and just how to sell and position the product so that clients or consumers will want the offering.
The visionary often has more ideas than budget. The finance role can evaluate the profitability of the visionary’s ideas and prioritize the projects. The operator can execute the visionary’s ideas.
The visionary provides strategic direction for the company and keeps the market offerings fresh.
If your business is missing a visionary, you might also struggle to keep your practice full as often (but not always); the sales function could fall to the visionary. You might also find yourself getting stagnant with your service offerings and falling behind the marketplace.
The fix for a missing visionary is to develop a sales and marketing team and/or a research and development team that can serve these functions.
The operator is an action person who can execute. They get things done. They can find and hire the right team. They can develop the systems, job descriptions, procedures, and processes that makes the company unique.
The operator takes the visionary’s ideas and makes them happen. They need the visionary’s ideas because they would rather take someone else’s ideas and work with them than create their own. They also need the support of the finance executive to stay on budget and to focus on one project at a time or avoid hiring too many people.
A business without a good operator never gets the product to market and may also constantly be short of team members.
Responsible, Finance-minded Executive
The finance expert helps to make the dollars work for the company. They can tell us how much we need to sell and how much we can spend. They can also provide capital sources for the company via investors or loans.
The finance executive loves numbers and can help to make sure the company’s operations are profitable. They’ll work closely with the operator to make sure that the right number of people are hired at the right salary levels. They’ll work with the visionary to plan and budget for new sources of revenue and new product lines.
Without a finance executive, a company often spends more than they bring in and may not have a viable profit plan. They may also run out of cash which can cause problems with creditors and investors.
This is the role we can not only help you fill, but also help you build your financial literacy to the level that you need for the stage your company is in now and for the future.
Your Business Success Trinity
As you were reading, which role are you? Which role jumped out at you that might need shoring up in your business? You might be strong in one area and need to outsource another while keeping a strategic eye on things overall.
Look at each of these roles and objectively assess your business. How are all three roles being served in your company? Which ones need more development for your business to grow?
Getting clear on your company’s roles can very well take you to the next level of success.
Which trends impact your business the most? Which ones speak to you? Feel free to reach out to discuss any of these ideas with us.
If you want to create more revenues in your business, you need to create more transactions. Run these figures with your business to see how you can generate more revenue. Learn How Revenues Are Transactional with Rhonda Rosand, CPA, and Advanced Certified QuickBooks® Pro Advisor of New Business Directions, LLC.
The products and services your business sells make it unique. The same thing is true of how these items are set up in your accounting software. Whether you’re using QuickBooks Online or something else, getting your products and services set up right can impact the quality of the information you can get out of your accounting system.
Here are the types of items you can set up in most systems.
Inventory items are used in retail and wholesale businesses. They are physical items that the system can keep count of for you. You can purchase or make the items, and the associated cost is usually tracked when a shipping receipt or bill is entered. They are sold when a sale is made and an invoice or sales receipt is entered.
Transactions using inventory items impact a lot of accounts on both the balance sheet (cash, accounts payable, accounts receivable, and inventory) as well as the income statement (cost of goods sold, sales, and returns). The inventory item can be tied to default sales and purchase accounts in most systems.
QuickBooks offers a type of item called a non-inventory item. There’s a big difference in that non-inventory items do not have quantities associated with them. They don’t increase or decrease the inventory account. But they are able to be tied to default sales and purchase accounts like inventory items above.
Examples of non-inventory items include items purchased for a specific jobs, such as a contractor purchasing appliances for a custom home, items you sell but do not buy, such as an ebook or other digital product, and items you purchase but do not sell, such as shopping bags.
A service item is a special type of non-inventory item. There are no quantities, which makes sense because services are not physical items. They also are only connected to a sales account and not a purchase account.
With service items, you could set up service packages or hourly rates.
A bundled item is a group of items that were designed to be sold together. For example, if you sell a gift basket of coffee products, you would bundle the items used to create the basket.
An assembly item is a special type of inventory item where the quantity is tracked, but it differs from an inventory item in that it can’t be sold separately because it is a component and not a whole item. Assembly items are available in larger accounting and inventory apps, such as QuickBooks Enterprise, and are used in conjunction with a Bill of Materials or other build feature.
An example is a set of shelves. The assembly components are the individual shelves and the frame pieces that you may want to keep counts of. An inventory item that contains the shelves, the frames, and other parts is “built” from the assembly items. The nuts and bolts could be non-inventory items or assembly items, depending on whether you wan to keep count of them or not.
Sales tax is a very special type of item used on an invoice or sales receipt to calculate sales tax due on the order. In many accounting systems, it’s usually kept in a separate list from the other product and service items. Rates can be entered for each sales tax jurisdiction.
Some systems have an “other” category to capture items such as freight, shipping, handling, and other add-ons to the sale.
Setting up the right type of products and services is critical to matching costs and revenue for accurate insights into gross margin. This section of your accounting system is also the one that’s most different from industry to industry and company to company. Be sure you get professional help from experts who know both the software and your industry for best results.
One of the most important success factors of small businesses is the ability to generate revenue, and to do that, most businesses need to market their services and products to bring in new customers and sales. The challenge for small business is how to make their marketing dollars work the hardest, and this requires careful tracking and measurement. Here’s one way to get started tracking your marketing spending so that you can find out what’s paying back the most.
List your sources of revenue
First, determine where your sales are coming from by making a list of all the ways you are currently attracting customers. Here are a few:
- Website via search
- Social media
- Google ads
- Referrals from existing customers
- Ad in a local magazine
- Article or Newsletters
- Board membership on local nonprofit
- Chamber of Commerce membership and participation
Track your expenses by source or method
Once you have your list, it’s time to look to your accounting system. Create an account for marketing expenses in your chart of accounts to track expenses for these marketing methods. Sort them by the payee to review totals for each category. If you need our help, please feel free to reach out.
The goal of this step is to be able to get all costs associated with each of these marketing methods so that you have a total cost over time by method. Don’t forget labor: if an employee spends three hours a week updating your social media accounts, this should be included in your costs.
Determine the source of your sales
To the extent you can, match the sales that come in with the marketing source or method. In other words, if a customer knows you from the Chamber and spends $500 with you, match the $500 revenue with the Chamber marketing source. Do this for every sale you can. If you don’t know or can’t attribute the sale to any one method, then code it to an Unknown tracking code or account.
This step can be difficult, depending on your business type, especially if your customers are anonymous, as in retail or restaurant sales. However, every business can do better by asking “how did you find out about us?” to each new client that comes in and recording that answer.
For online sales, you can use tracking apps such as Google Analytics to help you measure digital marketing methods.
Do the best you can on this step, and implement procedures to capture this information as accurately as possible for future sales.
Analyze and adjust
This is the fun part. Once you’ve done all the hard work, you should be able to match sales to costs and determine the volume of sales that are coming in for each marketing method. Let’s say you found out that you are getting no sales from your nonprofit board membership, the newsletters articles, and social media. You now have some decisions to make.
If you are doing these things solely for the purpose of marketing, you could cut them out and focus on the remaining methods. It could also mean that you need to redo your social media strategy; it’s not working now, but another strategy might. Or just one article or newsletter is not enough, but three articles could start paying off.
At any rate, you have far more information than you did before you started, and now you can make smarter decisions about your marketing. If we can help you code and crunch all of these numbers, please reach out any time.
There are a lot of deadlines that come with running a business. Missing some deadlines can have serious financial implications to the health of your business. Let’s take a look at how much you’ll save by being on time with the following deadlines.
One of the toughest deadlines of all, making payroll, is essential to keeping employees happy. Making payroll tax deposits on time is even more crucial. You’ll save the following in penalties by staying on time with payroll deadlines:
- If you’re 1-5 days late with payroll tax deposits, the penalty is two percent of the payroll.
- If you’re 6-15 days late, you’ll pay five percent in penalties.
- If you’re more than 15 days late, the penalty goes up to 10 percent.
And that’s just the federal penalties, not your state penalties.
Everyone knows about the April 15th deadline to file your taxes. Some people file an extension and have until October 15th. However, we need to remember that the best estimate of your tax liability needs to be paid by April 15th even if an extension of time is granted. Failure to correctly estimate and pay income taxes leads to a penalty that is calculated by multiplying the number of days the tax is late by the effective interest rate.
If we’re slow to make our accounts payable payments, our vendors may tack on a penalty, but the larger consequence is the effect on our credit score. Plus, you will get better pricing from your suppliers if you pay on time and within terms.
It’s so easy to let internal deadlines slide, but they may be the most important of them all. To move your business forward, set goals with deadlines so that you can measure your results.
Here are a couple of tips to master your deadlines so you can avoid the above consequences:
- Keep a list of deadlines, or hire someone to help you with them.
- Make a mental commitment to yourself that the deadline is important to your business.
- Set aside the time you need to prepare for the deadline. Block time on your calendar and stick to it.
- Remind yourself of the consequences of missing the deadline.
- Try not to overcommit. Delegate other tasks when possible.
- If possible, automate or systematize the processes around the deadline so that it’s met automatically.
- Stay up late if you have to in order to meet your deadline.
- Celebrate when you meet your deadline!
Attracting and retaining talent in your small business can be a giant step toward growing into a mid-sized business. Beyond attracting new employees with salary and benefits, here are several perks, policies, and benefits to consider when recruiting women, and employees in general, to your workforce.
1. Flex work hours.
Everyone likes regaining control over their workday, and offering flex hours can be one of the lowest cost policies to implement. Flex hours support work-life balance and are especially important for employees who have school-age children who can plan work around their children’s day.
2. Wellness initiatives.
Large companies are able to offer a wellness program, but small companies can take small steps to reach the same result. Find a local gym to partner with for a membership discount. Bring in the occasional yoga teacher. Or hire a nutritionist to speak once a quarter to your employees. All of these small initiatives demonstrate to your employees that you honor a culture of wellness.
3. Maternity and adoptive leave.
Do you have a policy about time off for new parents? And more importantly, you’ll need a process to re-integrate the employees into the business when they return.
4. Child care support.
Even if you can’t afford to provide onsite child care, you might be able to partner with a local child care facility to provide reduced or subsidized rates.
5. Gender hiring goals and metrics.
Do you have an equal number of men and women in your workplace? If not, do you have goals in place to adjust the ratios when possible? If you have a disproportionate number of one gender making all of the hiring decisions, you may want to consider the effects of implicit bias on your hiring processes.
One way to speed the growth of employees is to provide mentoring. All employees will benefit from strong role models.
7. Opportunities for promotion.
Both men and women will perform better when there is a clear path to promotion as well as leaders in current positions who demonstrate leadership.
8. Dress for your day.
One of employees’ favorite perks is to be able to dress casually when no customer meetings are scheduled.
9. Paid time off.
Paid time off, which used to be called sick pay, is a favorite. But now, with most employers, you don’t necessarily have to be sick or explain your reason for wanting to take a personal day from work.
10. Gender-neutral company events.
Many companies create events for employees and sometimes customers to enjoy and mingle. This can include the company Christmas party, lunches, and happy hours. It can also include sports events such as golfing and attending baseball games. For every traditionally male event, be sure to plan a traditionally female event to keep the options gender equal. Spa day, anyone?
These benefits are a great start to attracting top talent, boosting employee morale, and maintaining a happier workforce in your business.
Every business has a gold mine in its current customer base. But not all business owners remember to mine this gold because they are too busy trying to attract new customers or developing new products or services. This is the perfect time of year to step back and remember the three easiest ways to grow your business revenue using your existing customer base.
1. Offer More
Offer steady customers a product or service with more features than they usually purchase. Examples include moving a client from coach to first class, from a budget vacation to a luxury one, from a standard model car to a luxury version, from an off-the-rack suit to a designer suit, from the standard service to an all-you-can-eat version, and from a regular meal to a super-sized one.
Some customers simply need to be given permission to splurge on themselves, so why not by you? Others have outgrown the standard package but find it hard to break the routine. With a gentle nudge from you, a percentage of your clients will purchase the upgrade, therefore boosting your sales with little effort on your part.
2. Additional Services
Restaurants practice this the most, asking us if we want appetizers, dessert, or fries with our entrée, and you can apply this to your business too. If you offer two services and a client is only participating in one service, make sure they know about the other service you offer and find out if they have a need for it.
This is called cross-selling, where you offer a current customer a service or product that they don’t already purchase from you. For example, an attorney that does trademark work for clients might also let clients know that they do wills, too. A pool builder who also offers maintenance service will want to follow up with the new pool owner once the pool is built. A real estate agent who also manages properties will want to let rental property investors know about this service.
3. Review Your Pricing
In the retail business, if your costs have gone up but your prices have remained the same, you’ve accidentally given yourself a pay cut. No one wants that, so raising prices is an option that will restore your profit margin to the way it was before costs went up.
If you’re in the services business and you are better, faster, and prettier than you were last year you’ve also given yourself a pay cut. If it takes you less time to do something because you spend the money and the time learning a new skill, you need to be compensated for this.
If it’s been a while since you’ve raised prices, it might be time to make an adjustment. Review your price list for your services and products and determine what you need to do to bring the numbers back in balance. Let us know if we can help with some profit margin or breakeven calculations to help you make this decision.
Raising prices requires careful consideration and timing. Customers do expect periodic price adjustments, so don’t let procrastination or fear hold you back from making a good solid business decision here.
All three of these strategies will help to raise your average revenue per customer and boost your overall revenue without a lot of additional work on your part. Try these strategies so you can enjoy a more prosperous 2018.
Happy New Year! January is the month of new beginnings and a perfect time to strategize about projects that will boost your business prosperity. Here are five ideas to get you thinking about new beginnings for your business in 2018.
1.Learn new technology.
Every year, tens of thousands of new online software applications are invented that will save us time and money. Learning at least one new app will keep us sharp and hopefully improve our business. There are many to choose from, and one way to narrow it down is to find one that will help you do your job better.
Look for an app that supports your administrative work, such as a new phone system, video conferencing, scheduling, cloud storage, shipping, document management, or data entry automation. Or you might have a need for apps in marketing and sales, such as social media, customer relationship managers, email list management, or web applications. If you’re not sure where to look, ask your friends what has saved them the most time.
2.Upgrade your accounting system.
If your accounting system is not updated to the current version, it may be time to perform the upgrade. Check with us for advice on the current version and any new features that you can benefit from.
3. Develop your 2018 prosperity plan.
The word “budget” has somewhat of a negative connotation, but a prosperity plan sounds like fun. They are the same, of course, and the idea is to determine what goals you want to reach so that you have a clear path to making your desired prosperity a reality.
4. Create a theme or mantra.
Want to stay more focused in 2018? A theme or mantra can remind you to stay on track with a particular project or goal. Brainstorm a phrase that will guide you in 2018. Here are some examples:
- Customer service excellence
- More me-time
- Enthusiastic, engaged employees
- Expanding digital presence
- Going green
- A prosperous new product line
5. Delegate something that isn’t getting done.
One way to feel amazingly rejuvenated and re-energized about your business is to give someone an item that’s been on your to-do list for far too long. It magically gets done right before your eyes!
We’re wishing you a most prosperous and happy new year.
Mission statements are not just for large corporations. As an owner of a small business, you can benefit from going through the exercise of writing your mission statement. It can not only re-connect you with your “why,” it can also communicate an important part of your business to all of your stakeholders.
What Is a Mission Statement?
A mission statement answers the question “What impact will you have on the world?” It’s your core purpose, your reason for being.
Here are a couple of mission statement examples from large companies you’ve probably heard of:
Harley-Davidson: We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.
Darden Restaurants: To nourish and delight everyone we serve.
FedEx will produce superior financial returns for shareowners by providing high value-added supply chain, transportation, business and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.
Ford: We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world.
Levi-Strauss: People love our clothes and trust our company. We will market the most appealing and widely worn casual clothing in the world. We will clothe the world.
At Microsoft, we work to help people and businesses throughout the world realize their full potential. This is our mission. Everything we do reflects this mission and the values that make it possible.
NIKE: To bring inspiration and innovation to every athlete in the world.
The mission of The Walt Disney Company is to be one of the world’s leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world.
A mission statement differs from a vision statement because a vision statement communicates what the company wants to be.
Ask yourself what your business’s core purpose is. What is the impact you want to have on the world? Once you know, you’ll be able to write your own mission statement.
Sharing Your Mission Statement
There are many ways you can share your mission statement.
- Make sure your employees know it.
- Display it in the About section of your website.
- Add it to your marketing material where appropriate.
- Use it when recruiting for new employees.
- If it’s short, use it on promotional items such as mugs and t-shirts.
- Frame it and hang it in your office.
- Mention it in speeches you give.
A mission statement is something to be proud of and something that should make people smile. Yours should motivate and energize you. Once you’ve written yours or if you already have one, be sure to share it with us.