Six StepS to Help Your CompanY Grow in CHallenGinG eConomiC timeS

six stEps standardYour 5 auditing to HElp no. CompanY groW in CHallEnging EConomiC timEs

are you afraid? in his 2004 letter to shareholders of Berkshire Hathaway, investor Warren Buffet wrote, Be fearful when others are greedy and greedy when others are fearful. today, many small- and medium-sized business owners are fearful. theyre afraid they wont get the credit they need to run their businesses. theyre afraid their customers wont buy their products, and theyre afraid they wont make their payrolls. as a result, they focus on survival, not growth. smart business owners, however, have a different perspective. they see challenging economic times as opportunities to streamline expenses, maximize profits, and grow their bottom lines in other words to be greedy, as Buffet puts it. any business owner can take six simple steps to make sure his or her company grows when times are tough and emerge from a downturn more efficient, more competitive, and more profitable. Growth vs. Survival Every business wants to grow and prosper, not just survive. it may seem like an insurmountable challenge to do that in the current business environment. Fear causes business owners to question every expenditure, and many feel comfortable cutting costs without too much thought as to where or why, in order to protect their bottom lines. Even businesses that are doing well are holding on to their cash and not investing. But owners need to find ways to cut costs while growing their top line and their bottom line as well. its up to small- and medium-sized business owners to plan to thrive, not just survive. Companies can position themselves to do well in this down cycle, as well as when the economy recovers. Fortunately, downturns are great times to look at a business health and make sure its being run as efficiently and effectively as possible. When times are good, many business owners dont have the time or inclination to do this; good sales numbers hide internal inefficiencies. But when things are slow, wringing out inefficiencies and maximizing revenue are keys to growing and prospering.

six stEps standardYour 5 auditing to HElp no. CompanY groW in CHallEnging EConomiC timEs

recessions and economic downturns are good times for restructuring, as well. if your plan for growth calls for strategic, targeted reductions in personnel, now is the time to do it, not when business is booming. First of all, there may not be time to carefully consider your personnel needs when the emphasis is on getting orders out the door. second, the public perception of layoffs is much different in a weak economy than in a period of expansion. in an expansion, layoffs may be viewed as a sign that the company is in trouble. But during a recession, customers and shareholders are more likely to view layoffs as either an inevitable result of the economic downturn or prudent cost-cutting measures by a proactive management team. (But as we shall see, personnel cuts should be done with a scalpel... and not a chainsaw.) Six Steps for Success: planning and thinking ahead being proactive and not reactive are what will separate winners from losers in this recession. Here are six steps that your business can take to not only survive this downturn, but actually thrive and grow during it and long after its yesterdays news. Step 1: lower employee health care costs. many employers view health care benefits as a line item that needs to be cut during an economic downturn. the common practice is to increase cost-sharing with employees by raising their deductibles and increasing their co-pay amounts. However, this is a mistake. providing employees with a competitive benefits package actually increases the bottom line. this seems counterintuitive at first. However, its important to remember that in any organization, the most valuable asset is the employees. not only are employees valuable in terms of the skills, education, and experiences they bring to the company, but theyre valuable in the sense that good ones are hard to train and even harder to come by. a competitive package of health care benefits can help to retain top employees.

six stEps standardYour 5 auditing to HElp no. CompanY groW in CHallEnging EConomiC timEs

any time an employee leaves, it impacts the company beyond the immediate loss of his or her contributions. Everyone elses productivity decreases because other employees now have to shoulder that employees workload. the people that relied on the departed employee for information or instruction may see a decrease in their productivity as well. morale can decline when top employees leave, which further negatively impacts productivity. moreover, the costs to the company are great: lost relationships and missed sales with clients, losses due to employees who are unfamiliar with the position theyre filling, and the high cost of finding and training a replacement. some authors have pegged the cost of losing an employee and on-boarding a new one at up to $1 million.1 still, its easy to risk losing money in the long term when there are employer insurance premiums to be paid in the near term. How can you provide quality health insurance benefits now without emptying the coffers? First, benchmark yourself against your peers others in the industry with a similarly sized workforce. to be competitive, your plan neednt be in the top one percent of all employers. Being in the top 25 percent will allow you to cut costs while still providing quality coverage. it will also let your employees know that youve researched whats out there and where your offerings stack up. also, know the companies with which you compete for your top employees, and make sure your health plan is in the same ballpark as theirs. another new trend is creating a culture of health and implementing value-based benefits. When a company creates a culture of health, it makes healthy living and active lifestyles a part of the companys day-to-day culture. Employees are encouraged through a variety of means, monetary and otherwise, to make better choices about their lifestyles and their health care. For example, there may be companysponsored sports teams, walking trails on the corporate campus, or weight-loss contests. the thinking is simply that healthy employees are less expensive to insure, show up to work more often, show up sick less often, and are overall more

nathan, s. (2008). Help execs grip the flying trapeze. Business Insurance Industry Focus, January 2008. retrieved dec. 11, 2008 from http://www.businessinsurance.com/ cgi-bin/industryFocus.pl?articleid=23874&issuedate=2008-01-20

six stEps standardYour 5 auditing to HElp no. CompanY groW in CHallEnging EConomiC timEs

productive. as Capital ones chief Hr officer matt schuyler said, reducing the need for health-care services in the first place by improving associate healthcreating a culture of health within the organizationappears to be an effective strategy for reducing costs over the long term.2 Presenteeism, or sick employees coming to work, is a major drain on resources. a study by advancepCs, a health management company, showed that of the quarter-trillion dollars in losses u.s. businesses incur every year due to illness, nearly three-fourths come from presenteeism.3 a culture of health can reduce employee illness and help to shorten recovery time, saving businesses literally billions of dollars in lost productivity. similarly, value-based benefits encourage employees to care for and prevent serious and chronic medical conditions that would keep them from being as productive as they might be otherwise. the medications and preventive treatments that add the most value to an employees life those that address killers like heart disease, cancer, diabetes or depression are made the most available by reducing or eliminating deductibles and co-pays for them. likewise, non-essential or voluntary procedures and medications are the most expensive. in this way, employers monetarily incentivize employees to take better care of themselves, which in turns boosts productivity and the bottom line for the company. lastly, dont ignore generational differences when determining changes to employee benefits. generation Y or millennial employees will appreciate and expect exercise programs and opportunities that are both social and recreational in nature. generation x will look for family-friendly health plans, while the Baby Boomers may need access to affordable prescription medications. By tailoring options to your employees demographic profile, you can not only cut costs and improve your bottom line, but also produce happier, more productive employees who boost your top line as well.

2 3

schuyler, m. (2008). Creating a culture of health: the new corporate mandate. Employment Relations Today, fall 2008, 35-41. stewart, W., matousek, d., & Verdon, C. (2003). The American Productivity Audit and the Campaign for Work and Health. the Center for Work and Health, advance pCs.

six stEps standardYour 5 auditing to HElp no. CompanY groW in CHallEnging EConomiC timEs

Step 2: maximize cash flow. adequate cash to pay bills and meet payroll is the lifeblood of any small- to medium-sized business. never get too caught up in the day-to-day operations of the business or closing sales to forget to collect your receivables. Having an automated collection system in place will provide you with a tool that automatically generates invoices, statements, past due notices, and other tools you need to collect from your customers. always negotiate terms with your customers that allow you the fastest access to your cash. For example, require deposits up front, and specify that payment is due upon fulfillment of the order. if you extend payment terms out to 30 days or more, your customers are getting a free loan from your business. likewise, try to negotiate terms of 30 to 60 days or more with your suppliers. that way, you can have the cash in hand from your customers to pay vendors when their bill is due. another important way to ensure a steady stream of cash is avoiding a single-client situation. not only does over-relying on one customer (such as a local government or major local manufacturer) threaten the viability of your business, it puts you over a barrel when it comes to payments as well. simply put, if your sole customer cant or wont pay, you dont have cash. seek out multiple customers and spread your business around if possible. Step 3: minimize annual taxes. there are several great ways to minimize your annual business taxes in the current tax year. First, always make sure you maximize your deductions. Your accountant can review your expenditures and help to identify deductions for line items such as training or business travel. a great way to increase deductions is to make scheduled donations to charity by yearend, which has the added impacts of casting your business in a positive light and benefiting the community. second, you may be able to expense certain equipment purchases immediately instead of spreading out the deduction

six stEps to HElp Your CompanY groW in CHallEnging EConomiC timEs

over several years. this can give you a very large deduction all at once and take a sizable chunk out of your tax bill. if you operate on a cash basis rather than an accrual basis, as many service industries do, then you should consider taking next years deductions now by paying Januarys bills prior to year-end. You can also be creative in your hiring. For example, you do not have to pay payroll taxes on independent contractors, but you do for employees. also, payments to contractors can be structured to your maximum tax savings advantage. However, know that there are strict rules about who qualifies as a contractor and who doesnt. Consult with your accountant or an attorney to make certain you follow the law. Step 4: reduce costs for payroll and flex plans. Flexible health plans are great ways for employers to save on payroll taxes. Why? they dont have to pay FiCa taxes on the money that employees contribute to their flex plans. For example, suppose an employee contributes $2,000 in a year to his or her flex account. at a FiCa rate of 7.65 percent, thats $153 that the employer doesnt have to pay. another key way to lower payroll expenses is simply wise resource management. overtime, at time-and-a-half worse, should be kept to a minimum. if possible, allow employees to take compensatory time or be flexible with their schedules in lieu of overtime pay be creative! Examine employees workloads at various times of the year. For example, if year-end is a particularly busy time for a certain group of employees, while the spring and summer months are slower, determine if these employees can be asked to do more during these times of year. do certain employees have discretionary times during their workdays or workweeks when they could take on additional duties? its also important to reward good time management and build these recognitions into your corporate culture. recognize employees who find ways to save time or reduce duplication of work through low- or no-cost methods (social rewards such as pats on the back, mentions in a newsletter, a gift certificate to a modestly-priced restaurant, etc.).

six stEps to HElp Your CompanY groW in CHallEnging EConomiC timEs

a good automated time-keeping system can also be a time and money saver. this system should be integrated into the companys payroll system. Without such a system, work rules regarding penalties for lateness, allotted times for breaks and meals, and grace periods are often ignored or circumvented. With an automated system, work rules are built in. penalties are applied automatically when employees break work rules, and its reflected in their paychecks. also, consider reducing grace periods altogether. lastly, its essential to understand how every employee uses his or her time and to determine if theyre being as efficient as they can be. the simplest way to do this is to have each employee keep a log of their activities. in addition, ask employees what they would like to do if given the chance. Employees who want to advance in the company will often find time to help in other areas. Step 5: improve productivity by utilizing technology. the #1 technology inefficiency facing businesses is not spam, viruses, or a lack of funds for new technology purchases. it is underutilization of the companys existing technology. its common for companies to invest in technology such as hardware, networking, or software. However, its expensive and consumes a lot of employee energy and patience just learning how to use it. after a typical tech install, everyone is exhausted, the company is out of money, and everyones job has been influenced in some way. at this point, its typical for everyone employees and managers to want to move on and forget about the changes for a while. many workers dont want to have to learn any more or do more than they have to in order to get paid. additionally, no one has the mental reserves to look back at what theyve been through and do a post-implementation audit. However, thats just whats needed. the most important question to answer is: did you get what you paid for? usually, technology is implemented in the least painful, quickest way possible so that you can get the bills out and get on with

six stEps to HElp Your CompanY groW in CHallEnging EConomiC timEs

the business. as a result, the company has missed a golden opportunity to improve processes, enhance information integrity, and ultimately benefit decision-making. By not seizing this opportunity, the company didnt generate full value for its investment. the solution? Without spending another nickel on new technology, get the maximum value out of what you have. this requires ongoing leadership from the top and continuous attention. instead of being satisfied doing what you used to do on paper, but with a computer, re-engineer the system to achieve the true benefits of technology increased speed, reduced size (think: no more binders or file cabinets), greater mobility, and reduced costs. this requires a leader who is visionary and takes risks on new ways to do things, not a weve always done it this way stick-in-the-mud. always remember that installing a system is the beginning of a journey of continual improvement for your business, not the end destination. Step 6: reduce property & casualty insurance costs. When looking at ways to reduce property & casualty insurance costs, dont risk a lot for a small amount of premium savings. analyze your risks and consider the odds. dont risk more than you can afford to lose. Consider the basic principals of risk management, that is: n What losses can you avoid? n What losses can you prevent through loss control and prevention? n What losses can you afford to retain? n What losses can you transfer to someone else via contract or other method? n What losses do you want to insure against? When you decide which potential losses you wish to insure, dont focus solely on price but look for broad coverage with an insurance carrier that understands your business or niche and is financially secure. Work with a trusted agent or broker who will do periodic reviews of the companys insurance program,

six stEps to HElp Your CompanY groW in CHallEnging EConomiC timEs

its claim history, and its loss prevention activities. obtain evidence of insurance coverage and certificates of insurance from your vendors, suppliers, and subcontractors so you dont get stuck paying a claim that should be paid by someone else. another way to lower premium costs is to increase deductibles. You can look at higher deductibles for your auto comprehensive and collision coverage, property coverage, building and contents, and a deductible on your general liability. in many states, businesses can have a small deductible on their workers compensation plan, ranging from $100 to $25,000, which creates savings of anywhere from one to 15 percent of the premium. Every business owner needs to review his or her claim frequency and severity and analyze risk retention capabilities. if you can afford to take more risk, consider loss sensitive insurance programs, which charge a premium based on the companys actual claim history. review the amount of insurance you have on your building and contents and be sure they are current with the appropriate replacement value. this exercise prevents you from over insuring or under insuring your property. are the values accurate? With a downturn in the economy, are you reducing inventories and supplies, and if so, should you lower your contents coverage amount? if you have not had appraisals done on your property recently, now is the time. at no time should you cut corners on risk management programs, loss prevention, or claims management processes and review. if you lose focus on safety initiatives or workplace safety standards, fail to use protective devices and equipment, or fail to properly maintain plant and equipment or production standards, you may see higher future insurance premium expenses. these will come through higher workers compensation experience modification factors and higher claim frequency, which will add to insurance costs. You may also incur extra hidden costs in terms of lost productivity, lower employee morale, and loss of reputation and standing.

six stEps to HElp Your CompanY groW in CHallEnging EConomiC timEs

Finally, if you find that you need to downsize employees, be sure to have an employment practices liability policy in place. use the resources of your d&o (directors and officers) or management liability insurance carrier, including their legal and human resource experts, to be sure that appropriate procedures and risk management processes are followed. this will avoid or mitigate costly wrongful discharge suits and payments to employees that lose their jobs, as well as potential fiduciary liability claims. trusted advisers are Here to Help in tough times, the tendency may be to avoid talking to service providers, as they can seem to be trying to sell something, but the best of them can offer guidance and advice that provide value and save cost far beyond their fees. and history has shown that companies that focus on growth when times are tough are companies that succeed. through all past economic crises even the great depression the companies that advertised the most, streamlined their operations, strategically cut costs, and focused on growth over survival consistently fared better than their competitors. moreover, they continued to fare better long after the economic downturn had ended. the choice is clear, and the steps are straightforward for those who arent afraid to take them. smart business owners will take Franklin roosevelts advice and remember that the only thing their business has to fear is fear itself. Contact your Cpa, insurance agent, or technology advisor, or if you would like another perspective, contact CBiZ.

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