Can I afford to hire an employee?
Monday, March 9th, 2009
Dear Norm,
I have a small business that tutors people in writing. I’ve been running it out of my home as a sole proprietor, using independent contractors. One woman who has been editing for me wants to come on as a full-time employee doing marketing and sales. I need someone to do that. Still, taking her on full-time would be a big financial commitment. She might also generate more business than I could handle. So am I crazy to consider hiring her?
Sharon
Dear Sharon,
It’s never crazy to hire an employee, provided you have the need and understand the financial consequences. That involves determining the additional sales you’ll have to generate in order to cover the new expenses. To do that, add up those expenses over a period of time and divide by your average gross margin. Suppose, for example, that in the first year it will cost you $39,000 to bring on this employee and make other changes, and your gross margin is 30%. You would then need to increase your annual sales by $130,000 at the same gross margin to cover the new expenses and maintain your current profitability. To reduce the risk, try an experiment. Have her work part-time in sales and continue doing her editing until you both have a better sense of the new arrangement.
Yours truly, Norm
How do I handle an employee who has resigned to become a competitor?
Monday, February 23rd, 2009
Dear Norm,
One of my salespeople recently resigned and started his own company competing with mine. I subsequently learned that he had been conducting his new business on the side while he was still working for me. What should I do?
Vennie
Dear Vennie,
You should do nothing. Keep building your company and forget about the guy. Don’t let this incident cause you to lose focus on what’s really important to your business. People waste a lot of time and energy worrying about ex-employees who become competitors. When employees leave to go into competition, I wish them well and send them a plant. It’s a cactus. This guy should be history as far as you’re concerned. If he’s an unethical person, he’ll eventually get his comeuppance.
Yours truly, Norm
Should I handle my own sales?
Monday, February 16th, 2009
Dear Norm,
I am the owner of a small handbag company that is facing a tremendous amount of competition. My business was doing very well until about a year ago, when sales started to slip. I have received wonderful editorial credits in the top fashion publications and have had placement in the finest stores in the country with good sell-through. Last year I decided to take sales in-house, because I thought I could be the best spokesperson for my product. My primary goal is to build a solid brand. How can I get to the next level?
Nancy
Dear Nancy,
Handling your own sales is not how you build a brand. You need to develop a certain mystique as the person whose name is on the product. You can’t do that if you’re spending your time qualifying leads, making sales calls, getting doors slammed in your face. To build a brand, increase your sales, and grow the company, you need to turn responsibilities over to other people. That can be hard, I admit, particularly when you believe you can do the job better than anyone else. I was the first dispatcher in my delivery business, and I always thought I was the best at it. But if I were still dispatching, I’d have a very small company today.
Yours truly, Norm
How do I handle the off seasons?
Monday, January 26th, 2009
Dear Norm,
I have a three-year-old company that produces job fairs, and we’re riding a roller-coaster. Business is great for three or four months in the spring and again for two or three months in the fall. In between, there’s nothing. Our cash flow falls to zero. Meanwhile, we still have to pay our employees. We’ve tried attracting customers by offering off-season discounts—to no avail. The cash crunch gets so bad that we spend most of the good months just recovering. This problem is crippling the business and my emotional stability.
Kent
Dear Kent,
First of all, off-season discounts usually don’t work and may undermine the profitable part of your business. Instead you should look for ways to diversify. Are there other types of shows you could produce in the down months? Could you do consulting during those times? You have to be creative, but diversification is generally the best solution to seasonal fluctuations. Meanwhile, deal with the cash-flow problems directly. Can you negotiate to pay your leases during the months when you have more money in the bank? Can you speed up your collections when cash is tight? Also try explaining the problem to your employees and asking for their suggestions. They may well come up with ideas you’d never think of.
Yours truly, Norm
Should I give up on a sale?
Monday, January 19th, 2009
Dear Norm,
I am a fledgling neckwear designer, and I’ve finally gotten all my ducks in a row. I contacted a local menswear chain and persuaded the buyer to take a look. I sent him tie samples, fabric swatches, photos, everything. Two months ago he assured me he was going to place an order. Since then I’ve called him repeatedly, and he always tells me he’s about to fax the order, but he never does. I’m having second thoughts about doing business with someone whose word doesn’t mean anything. Should I keep pestering him?
Pam
Dear Pam,
I’d bill him for the ties with a tongue-in-cheek note. Say something like, “I’m sure you loved my ties so much, you’re probably wearing them, but as a small-business person, I have to get paid for my services. If you are not satisfied with the ties for any reason, you can always return them. Otherwise please send me a check.”
Yours truly, Norm
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