This is the second article of a three-part series on small business finances: Part I | Part 2
Forgive me brother for I have sinned.
In the first article of this series, I summarized how early on in our careers, my two brothers/partners viewed me and my thriftiness/frugality as a stingy tight-fisted miser.
My brothers and I have had a few vehement disagreements over the years about some budget choices. One great aspect of having three equal partners is that when a vote is taken, majority wins.
Budgetary decisions often times require courage because difficult financial choices affect everyone within an organization. Belt tightening, cutbacks and general business decisions are a necessary and healthy part of the business cycle, and few people cheer when a tricky budget cut or choice is made.
Last week, for example, I had to fire an employee of 15 years with six children. This field supervisor, over the last two months, poorly served two repeat customers and made them very unhappy. And over the last year or two he has been regressing, rather than improving, which had been communicated to him.
This decision greatly saddened me because he was such a good family man and person. However, quality experts tell us that on average an unhappy customer will tell 22 people about poor service. And, trust me, too many unhappy customers will drastically hurt a budget.
Budgets are not a popularity contest. Questions, concerns and discussions can frequently lead to disagreements. Therein lies the conflict of a good budget. However, if done well, good budget practices eventually should reward every good employee.
The origin of the word "frugal" is "fruit or to bear fruit," which is exactly where the beauty of a good budget lies. They create a cautious stewardship of resources (frugality) that should lead to a thriving organization (bearing fruit). Thriving organizations lead to more jobs and greater compensations.
The following are six cornerstone budgetary philosophies that have helped our organization bear fruit through the ups and downs of many business cycles. Many might say that a budget is mostly about crunching numbers. I would respond and say a good budget is so powerful within an organization that it can greatly influence the hourly decisions of the staff, which will help contribute to greater profits.
- Put the well-being of the organization before the well-being of people. If the needs of the organization are met first, then eventually the needs of people will be met. There are some exceptions, but in general, if this is done well, the organization will thrive, and then people will thrive.
- Incentive pay and bonuses establish an organizational culture that rewards behavior that encourages growth and avoids waste. Raises and bonuses have to be tied to performance rather than schedules so everyone knows which behaviors are targeted to strengthen a company.
- The power of great credit gives an organization several advantages. Initially, it extends the amount of time a firm has to pay its bills, which helps cash flow. Besides acquiring credit, it also gives a firm a leg up on negotiating best pricing. Routinely paying your bills on time holds a value that vendors respect and will reward because there are so many competitors who pay late.
- Work hard at gathering prices. The central success of the American economy is based on competition and free enterprise. Maximize the power of this by gathering and finding pricing that fits your budget.
- Business insurance should be a safety net for catastrophic accidents — not a nickel-and-dime account for every small claim. Self-insure all small claims. If you are a growing company, and you pay 1x for small claims, over a long period of time you will save 1.5x or more on premiums. Insurance companies track your losses closely.
- Celebrate safety. Business insurance is a good part of every budget, and a safe work place will save money. Reward employees before the accident happens for good practices. Lunches, gift cards, prizes given out after a "safe and accident free" period of time will create an awareness of safety that every company needs. Remember, behavior recognized is behavior duplicated.
