Wow! After a period of relative quiet the stock market is in a state of flux at the time of this writing. This is not to say what will happen the day after tomorrow, but it is worth thinking about what this means to staffing in general and to ones company. To put things into perspective the market has declined over 10% in a week and 1,000 points at the opening bell on August 24^th. This due primarily to China’s declining industrial output and their devaluation, followed by other international concerns, a slower US recovery, etc. However bare in mind that the Dow has risen 2½-3 fold over the last 6½ years (after the derivatives, sub prime mortgage debacle, etc.) and during this period we had no less then 5 substantial corrections.

So what does this all mean assuming things don’t return to “normal” the next day? First these types of corrections are normal and one should not panic. With computerized trading now being the norm trying to explain the unexplainable is simply reverse fortunetelling, making up what happened to fit the facts. Nevertheless when there is major correction most everyone starts to either freeze or cut spending due to uncertainty. While the risk takers start to buy what they perceive as bargains, thinking they know where the bottom is.

For staffing companies they may see a hiring freeze or even layoffs as has happened already to those serving in the energy sector or export sector. This can impact both direct hire and temps, with usually 2:1 relative impact. Until staffing company’s clients can see which way the economic wins are blowing they will defer adding cost, or even cutting cost. Some staffing companies may reduce their prices to avoid being left out in the cold. This may also be reflected in increasing the number of days clients pay their bills, impacting cash flow. Banks may tighten their loan policies and even enforce their covenants more strictly. A wise staffing company will make plans in advance of these events and have contingency plans in place. When the foul winds die down those fastest to reverse direction will be the winners, hiring good candidates, using their hoarded cash to make sound investments, scooping up clients who are again ready to spend money, etc. Adversity is the father of opportunity and in general small to mid sized staffing companies are quicker to take advantage of this.

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“Growth is good” and as Gordon Gekko said in Wall Street “greed is good”. To put both comments into perspective everything has its’ limits. Growth is good as long as it can be managed, that growth is sound and it can be financed. Growth for the sake of growth is not a good strategy. Investing in the wrong properties is not good in the game of Monopoly or the real world.

Too many small to mid sized businesses will take on any business they can get at their minimum margin rate. As they try to grow the business all too often they don’t adequately consider whether or not their clients are a good credit risks or the ability to pay their bills on time. The company of course has to pay for their goods or services on a timely basis and if they have long payables or worse need to write off a bad debt on a large account they will either eat into their line of credit or may even put the company in financial jeopardy. When the company has been doing business with a “good” client, the collection department may even be asked not to become too aggressive on past due payments as not to alienate them. But as account receivable days outstanding pile up so does the potential seriousness of the problem. Running a business should be balancing of risk and reward, looking at just the reward without assessing credit worthiness is risky business.

But even if your client pays their bills albeit late, if you grow too fast you can grow yourself right into bankruptcy. For example if you are a tech staffing company and have an available line of credit of $300,000 and minimal free cash reserves and then you have added 12 new contractors on assignment at an $80/hour bill rate. You will have increased your receivables by $166K/month. And if the client does not pay his bill until 60 days your A/R will rise by $332K. You have then exceeded your line and you may be in serious cash flow difficulty. Ideally the company should increase their LOC with the bank in anticipation of taking on large orders and as staying within prudent credit limits. Some clients, for the privilege of doing business with them, don’t pay their bills in 90 days to make money on the float.

Assuming that you have ascertained the credit worthiness of that client and their maximum credit should be $40,000 which would cover one contractor, with payment terms of 30 days. But adding 12 contractors should carry payment terms of 1 week. Alternatively you could have asked for payment in advance, or a deposit, based on the number contractors and hours they are scheduled to work, with adjustments made as necessary at week end. Providing competitive prices is a separate business decision from taking on the far greater risk of becoming someone’s banker.

To see all articles in this series please go to http://optimal-mgt.com/blog.

No one likes to think of their company as being tired or old, but with time many if not most do become so, its sort of like entropy where things just go down hill over time. The air seems to have just gone out of the balloon unless you keep on pumping fresh air back into it. So how does one go about revitalizing a company and breathing life back into it and seems to be out of fresh ideas?

To start with nothing lasts forever. Unless one is monitoring the company performance over time it can miss the fact that the company is no longer energetic but has become tired, with declining sales, loosing customers, its competitive edge, its brightest employees, etc. The prescription for a tired company is to first figure out what the problem is and then go about fixing it; otherwise it may fold.

Most companies become tired as they stay with the same concepts and people who got them to where they were successful past the point of diminishing returns and follow the axiom of “don’t break what is not broken”. Something doesn’t need to be broken to be fixed. Your old car may still work, but may be getting 15 miles per gallon and is a clunker. A new hybrid may get you 45 MPG, GPS won’t get you lost; air bags and ABS will make your trip a whole lot safer, etc. And just think how many companies and industries have been put out of business by just one new concept, the smart phone. Their product or service was not broken, just made obsolete in almost the blink of an eye.

Here are a few things needed to breathe life back into your company. 1. Find out honestly where things are and how much they have changed over time. 2. What were your sales and profits when it was at its peak vs. where you are now? 3. Do you know what your market expects and your competitor’s have been doing during this same timeframe? 4. Have you been adding new bright and innovative people to your company? 5. Have you made investments in new technologies to be relevant (refer the old car analogy)? 6. What have you learned from the above diagnosis and do you have the staff, capital resources, time and the commitment to make the changes that are needed? If you have done all of these things you are now in a position to create and implement a game plan to convert a tired company into a vital one. It may take a substantial change in the way you have done business to make this happen but the longer one waits the harder this becomes. A good place to start is to come up with 10 new ideas for your company; from how to implement a price increase to creating innovative new services or products and selecting the 3 best and implementing them. Avoid being that company where so much time has passed since making changes that their proverbial car has now rusted away.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Did you ever consider when it might be time to hand over the keys to your company so to speak? Some owners have no exit plan and want to run the company indefinitely and have given no real thought to doing anything else but staying in business. Others have an objective they want to achieve and then merging, being acquired, or cashing out after some objective is achieved. Have you given any thought as to which of these two scenarios might fit you.

During the initial phase of a new company the first option is usually all one wants to focus on, how do they succeed, serve a need, make money, grow and survive. But after some period of time they start to think do they want to do this indefinitely or have some exit plan and essentially hand over the keys in one form or another to someone else. There is nothing to compel anyone from just running their business and making enough of a profit to run the business for as long as they are able. Indeed most entrepreneurs do exactly that, earn a living from their business and when they can no longer do that, turn the key and lock the doors. But there is a better way

That is to capitalize on the value of the company that you created. To do this you can either sell the business outright which works best if it is profitable and growing, or do an internal buyout with your management team. This is easier to do if you have a reasonable mature staff that with a bit of business mentoring can run the business on their own and pay you out of the internal cash flow of this business what the company is worth. They can be your family members, people already working for you or bringing people in who would welcome this opportunity. It is equivalent to handing the key to the store over to them and gifting them the company. They pay you nothing and after a few years the company is theirs. There are many ways to structure this, including receiving continued dividends, but the deal works like a mortgage on a house, until the last payment to the property is made the bank (you) still owns title to the business which helps to insure that the new owner/management team keeps their eyes on the ball and there is little incentive to siphon money funds from your repayment. The sooner that payment in full is made the sooner the business is theirs.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Most domestic companies tend to concentrate on their local market and not pay much attention to what is happening around the world and in the area of international business. But even if you are not selling to foreign clients the state of the world economy may very well impact you, sometimes in a way that is not readily apparent.

Let’s consider just two of many situations. Say that you are serving only your local market and think you are insulated from world events. Perhaps you are providing a service to a local manufacturing company that is not themselves doing international business. But international events may still impact both of them and you. International currency has different exchange rates with the US dollar (although a few are pegged, or linked to ours such as Hong Kong and Panama). The vast majority of countries float with our dollar and over the past few years have been devaluated making our goods more expensive. The Euro has depreciated 24% vs. the dollar which helps the US consumer buy foreign goods more at a discount, but which tend to make our products ¼ more expensive. For those domestic producers using your services, they may be faced with the fact that their products could be that much more expensive if they have to compete with European suppliers. Similarly, they may need less manpower requirements as well. Our GDP has generally dropped from 5% to -0.7% during the last 2 quarters (adverse weather conditions impacted the last quarter).

We are also living with an unstable world given: real damage resulting from state sponsored cyber-terrorism, ISIS destabilization, an accelerated Iran nuclear breakout if talks fail, naval conflict in the South China Sea, the Euro sliding if Greece defaults, a military incident due to Russian aircraft incursions, etc. Any one of these events could lead to a loss of confidence in a fragile world economy and stock market which the US can not isolate itself from. The paper losses just in one’s investment portfolio could result in the liquidity to finance their business or being out of conformance in their bank covenants; neither of which is related to the underlying health of ones business.

These are exogenous events, or wild cards that most all companies can’t really plan for but should at least have some sort of contingencies to fall back on when events not of their making happen. For example, before the advent of cloud computing there were disaster recovery companies that kept companies computer systems running in the event of the loss of ones physical system.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Do you create different goals as well as a budget or profit plan to run your company? Most people run more then one set of projections to manage their company, each with a different purpose. There is the official business plan or budget that the company sets as it’s what it can count on in terms of sales, margins, fixed cost, profit, cash flow, borrowings, etc. Then there is a conservative forecast which is often what it gives to the bank and investors. This is generally somewhat more conservative projections so that the stakeholders will not likely be disappointed.

Then there are motivate employees to produce more then what the budget calls for and if these values are achieved the staff in turn gets a greater financial rewards and perks. Motivational targets provide a win-win scenario for both the staff and the company. Here is an example of how these three budgets can work.

The “official” budget may call for a 7% increase in sales which may be the company’s average gain in performance over the recent past assuming that no risks or major changes are on the horizon. A business plan would be built on this forecast. The conservative budget may project a 5% growth which therefore should be a safe bet and a positive surprise would be likely.

Here is an example of the impact of motivational targets for a company with a 5% ROS. Sales are targeted to rise 10% instead of 7% (with a provision for financing this growth) with a 12% improvement in margins (from a 20% base), with 9% higher fixed costs (5% excluding commissions) which would result in a 20% higher profit. The staff responsible for generating higher sales and margins would receive get 12% commission vs. 10% official budget, translating to a 34% increase in their commission $, plus perks such as an award trip. Motivational targets would be supported by a detailed profit improvement program, where everyone determines what they have to do to insure achieving these results. A metrics and monitoring system would typically put into place to keep track of their progress. Achieving thee targets would benefit the staff and stakeholders alike.

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Everyone has things that need attention. Many people work on the problem that hits their desk first and procrastinates in dealing with those things they dislike (like taxes). Others have a routine check list and attend to things in this order. Most well run companies prioritize things that can’t wait and follow them up with those that can wait. The key here however is identifying what is a priority. When the fire alarm rings it is clear that there is an urgent situation, but priorities do not always announce themselves with flashing red lights and sirens as an emergency. Most things that should be a priority may quietly smolder in the basement ready to cause a conflagration if left unattended. It is your job to investigate those things that can become critical when there are no red lights and sirens.

So the first thing one should do is take care of obvious priorities even if they are distasteful, such as dealing with a really unpleasant employee that you have had conflicts with before, but must be resolved before some really good people quit. The next step is to look for those smoldering problems that you need to identify before they heat up. These are typically situations which are not in your line of sight and you need the help of your team to bring to your attention. It may be a something where there may be potential liability or opportunity that may have overlooked. This may be a business opportunity that you thought you had a poor chance of winning and put little effort into, but after further investigation could be a bonanza, or dozens of other situations that may been put in the trash bin.

Here are 2 examples. A Business Developer was once a star, but was no longer very productive, did not document their work and was not being well supervised and one day walked out with many of the company’s top clients in tow. This could have been identified by a good manage who monitored the employees declining performance, took remedial action and had a parallel relationship with that persons clients to reduce their risk of losing them. In another situation, an IT staffing company put a programmer to work in what they were told was a commercial office setting, only to find out that they were reassigned to a manufacturing area where their workers comp insurance would not cover them. Requiring all employees report any change in physical work setting they were assigned, should have been routine and a priority.

To see all articles in this series please go to http://optimal-mgt.com/blog.

For most companies their most important asset is their people. For those companies in the service industry this would appear to be obvious, but even in production or manufacturing companies the same is true as there are fewer staff that are required and therefore fewer possibilities of things going wrong.

There is no such thing as the perfect person for ones organization. A great person for one company may be a very poor choice for another. Someone who can’t make it in one place may be outstanding somewhere else. Having a very good batting average is the best one can hope for. Selecting the right person every time is impossible and there is no magic bullet to predict success. One should rely on battery of tools, including: a multiple phase interviewing process with inputs from several people, using various prescreening and competency tests, checking out references and associates, using the internet and social media, etc. There is an axiom that says “hire slowly and fire quickly” best sums this up. Some highly successful tech firms may interview a candidate a dozen times to get through the candidates interviewing veneer to find what that person is really like and if they will fit into the organization from various perspectives. I have seen hiring managers’ fall in love with a candidate that they “really knew” was a perfect fit, paying little heed to the items noted above only to be disappointed. This goes equally for those who rely on only one or two steps in this process such as tests or reference checks.

A certain amount of turnover is good and healthy for any company to avoid inbreeding and gaining fresh insight as to how to do things better, but too much turnover will result in constant training, loss of continuity, inefficiencies and declining profit. The U.S. turnover rate runs 3-4% nationally, but that is not really a meaningful number. It is a well known fact that GE routinely ranks and terminates the lower 10% of its workforce and provided excellent compensation to its to 20%. Other companies have different parameters, but studies have confirmed that top performers can contribute 10 times more than average ones. Leading hi tech firms have figures orders of magnitude higher then this. A good rule of thumb is to keep the turnover of the top quarter of ones staff to less then 5% and a 10-15% turnover for the rest of ones staff usually being acceptable. There are companies who simply can’t retain good people, because of poor management, company culture, economics, etc. We have also seen turnover of over 100% a yea which can destroys most organizations due a decline in: productivity, morale, efficiency, profits and eventually the ability to operate.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Most people who do not work out in a new company don’t fail for lack of skills, but the corporate culture they are working in is not a good match. They are a square peg in a round hole.

Finding and retaining people that fit your specific corporate culture is one of the key factors in having a successful company. Corporate culture is not easy to define. It is the atmosphere that works for your company. For example: it might be a small company with an informal working atmosphere, an informal dress code, an open door policy, titles are not that important, a matrix organization with open lines of communications, ad hoc meetings, flexible policies and procedures and people are expected to be self starters with not a whole lot of formal training. Very often the CEO sets the tone and one has to figure out what they have to do to become accepted. This is indicative of many high tech start ups. People coming from a highly structured hierarchical setting such as an old line Fortune 500 Corporation or the military might find adapting to this culture well out of their comfort zone. Likewise, the reverse situation would not work well either where a person who is free to explore to get things done is going beyond the normal protocols of a more formal culture and does not fit in.

The difficulty is in finding out before hand if a person would be a goof fit or not. One can use personality tests, reference checks and in house interviews to try to find this out, but there is no magic bullet. The best approach is to use all three and come up with a consensus, with multiple in depth interviews usually being the most reliable indicator. People are on their best interviewing behavior during the first interview or two. It is only through the attrition process of wearing someone down via well designed multiple interviews that one get past the programmed veneer to get a job and find out what the applicant is really about. Companies like Google sometimes takes this process to an extreme with a dozen or more interviews, but one or two doesn’t do the job.

When one calculates the cost of failure in hiring again and again for the same position, the time spend in doing the job right becomes clear. We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Most people look at their most recent week to see how they are doing in whatever aspect of their work that they are interested in. For a sales rep he may have a target of making 100 calls a week, of speaking with 25 decision makers. A Manager may be charged with meeting a profit expectation of $500,000 a month, or any number of other targets or benchmarks.

If that person has achieved their target they might be thinking that they are doing a good job. But is that really what they should be focused on? Let’s use our Manager as our example and they did indeed come in with a profit of $510,000 for the month and exceeded their target. But is that all there is say. If 2 months ago they had a profit of $520,000 and last month they did $515,000; clearly although they are above their benchmark they are trending down and if things don’t improve they may soon be below their target.

It is surprising that many people look at their last period without seeing if things are going up, down or sideways, but without seeing if there is a trend of what is happening, you can be focusing on a snapshot of things as opposed to the big picture. This can be done simply by saving the data week by week and creating a time series and graphing the data chronologically. With the simple example given here one does not need to do very much to see that things are deteriorating. But when there is a lot of data, the answer might not be so obvious. This can sometimes be discerned by using a regression or (best fit trend line) that is part of a spreadsheet subroutine like Excel. Often there is no clear trend at all. Lastly (and most interestingly), there may be micro trends; during one period things may go in one direct and in another one they may go in a completely different direction and you should look at the underlying reasons which caused things to change. This may be a challenge, but will give you a lot more information to act upon then just looking at a single slice of time.

To see all articles in this series please go to http://optimal-mgt.com/blog.