Does everyone realize....

[sparky]

California,

The owner/employee relationship can be a win/win situation for both sides if the owners can put aside their focus on short term profit and concentrate on the long term instead.

sometime here , when the opportunity arises, i would like to supplement that notion with what is, and should be, a true apprenticeship

until then, welcome FiscalSanity, oh and, as a sm biz man may i say that any of us that are keeping it alive in this 'new economy' of late owes a nod to your profession's oversight

i'd still be passing hat for bail sans my accountant....

~S~

 

[boedicca]

California,

Whatever happened to the idea of BOTH sides getting rewarded? I don't begrudge the owners making money, but what's wrong with them sharing some of that reward? If profits are up and you're going to give everyone (including yourself) a raise, why should you consider it fair to give yourself a 5% raise when you're giving everyone else 2%? Or better yet, how do you justify not giving out raises to anyone because profits were down when the only reason that profits were down was because you gave yourself a bigger bonus then had been budgeted for?

Don't get me wrong, I do see both sides of this. Every employee feels like they should be making more then they should, and if you paid them all what they want you wouldn't have enough to feed yourself. However, when you're deciding your own pay that same tendency to over value your own contributions still exists, and it's very easy for a business owner to cross the line between compensating themselves fairly and being greedy. It's also far too easy for owners to think of employee's as nothing more then a cost that's coming out of their profits instead of realizing that their employees drive their profits, and that better paid employees tend to be more productive and therefore generate higher profit margins.
The owner/employee relationship can be a win/win situation for both sides if the owners can put aside their focus on short term profit and concentrate on the long term instead.

Without a focus on profits, there is no Long Term, bub.

 

[spectrumc01]

California,

Whatever happened to the idea of BOTH sides getting rewarded? I don't begrudge the owners making money, but what's wrong with them sharing some of that reward? If profits are up and you're going to give everyone (including yourself) a raise, why should you consider it fair to give yourself a 5% raise when you're giving everyone else 2%? Or better yet, how do you justify not giving out raises to anyone because profits were down when the only reason that profits were down was because you gave yourself a bigger bonus then had been budgeted for?

Don't get me wrong, I do see both sides of this. Every employee feels like they should be making more then they should, and if you paid them all what they want you wouldn't have enough to feed yourself. However, when you're deciding your own pay that same tendency to over value your own contributions still exists, and it's very easy for a business owner to cross the line between compensating themselves fairly and being greedy. It's also far too easy for owners to think of employee's as nothing more then a cost that's coming out of their profits instead of realizing that their employees drive their profits, and that better paid employees tend to be more productive and therefore generate higher profit margins.
The owner/employee relationship can be a win/win situation for both sides if the owners can put aside their focus on short term profit and concentrate on the long term instead.

Without a focus on profits, there is no Long Term, bub.

Without looking ahead, you run blindly off a cliff.

 

[FiscalSanity]

Accountants aren't very popular folks these days because we're lumped in with bankers, financers and the rest of the financial management industry. We're also the ones that tend to get the blame for lay offs and such, because senior management always trots us out as the bogeymen that forced them to cut costs.
Never mind that we were warning them a year earlier that they were being overly optimistic with their sales projections and shouldn't budget to hire so many new employees.

 

[LordBrownTrout]

California,

Whatever happened to the idea of BOTH sides getting rewarded? I don't begrudge the owners making money, but what's wrong with them sharing some of that reward? If profits are up and you're going to give everyone (including yourself) a raise, why should you consider it fair to give yourself a 5% raise when you're giving everyone else 2%? Or better yet, how do you justify not giving out raises to anyone because profits were down when the only reason that profits were down was because you gave yourself a bigger bonus then had been budgeted for?

Don't get me wrong, I do see both sides of this. Every employee feels like they should be making more then they should, and if you paid them all what they want you wouldn't have enough to feed yourself. However, when you're deciding your own pay that same tendency to over value your own contributions still exists, and it's very easy for a business owner to cross the line between compensating themselves fairly and being greedy. It's also far too easy for owners to think of employee's as nothing more then a cost that's coming out of their profits instead of realizing that their employees drive their profits, and that better paid employees tend to be more productive and therefore generate higher profit margins.
The owner/employee relationship can be a win/win situation for both sides if the owners can put aside their focus on short term profit and concentrate on the long term instead.

Without a focus on profits, there is no Long Term, bub.

Without looking ahead, you run blindly off a cliff.

Any good businessman will include targets such as profits. This is imperative if you want to succeed.

 

[FiscalSanity]

Boedicca,

This is an argument that's near and dear to my heart. This is heresy in the business world these days, but from my perspective there are more important things then maximizing profit. I know that violates the fundamental rule that's been taught in business schools in this country for the last forty years, but it doesn't make it any less true. If your company is already making $20 million in profit then is it really going to hurt you to make 1% less? That $200,000 isn't going to mean much if your the sole owner, and if it's a matter of stock dividends it's going to mean a difference of less then $1 on most shareholders dividend check. However, that same $200,000 can give 100 employees a $2000 a year raise, which is an extra $166 a month. Guess what-for most workers, that extra $100 is a big deal.

A company has to make a profit to stay in business, and the owners have to make enough that keeping the company is worth there time and investment, but at what point do you say that enough is enough? Do you have to have more money then not only you but your children can spend during your lifetimes before you decide that it's safe to cut the profit margin a little and share the wealth with the workers who are actually generating the profits your living on? Do you have to have a mansion, 80k+ car, vacations that cost more then your lowest paid employee makes in a year, etc before you're satisified?
Just as a tidbit from my own experience-Should you spend more eating out on a company expense account every month then your highest paid employee takes home in salary?

 

[spectrumc01]

Boedicca,

This is an argument that's near and ear to my heart. This is heresy in the business world these days, but from my perspective there are more important things then maximizing profit. I know that violates the fundamental rule that's been taught in business schools in this country for the last forty years, but it doesn't make it any less true. If your company is already making $20 million in profit then is it really going to hurt you to make 1% less? That $200,000 isn't going to mean much if your the sole owner, and if it's a matter of stock dividends it's going to mean a difference of less then $1 on most shareholders dividend check. However, that same $200,000 can give 100 employees a $2000 a year raise, which is an extra $166 a month. Guess what-for most workers, that extra $100 is a big deal.

A company has to make a profit to stay in business, and the owners have to make enough that keeping the company is worth there time and investment, but at what point do you say that enough is enough? Do you have to have more money then not only you but your children can spend during your lifetimes before you decide that it's safe to cut the profit margin a little and share the wealth with the workers who are actually generating the profits your living on? Do you have to have a mansion, 80k+ car, vacations that cost more then your lowest paid employee makes in a year, etc before you're satisified?
Just as a tidbit from my own experience-Should you spend more eating out on a company expense account every month then your highest paid employee takes home in salary?

I tried explaining it to them, but they don't want to understand anything from this side of the isle. Their broke and my broke are two wildly different things.

 

[daveman]

That doesn't effect the business itself. It is a tax on profit. The profit is still there, if it isn't, there isn't a tax.

So these companies, after enjoying years of tax benefits are paying back the states by leaving when they are asked to temporarily pitch in?

Sad.

Keep beating the dog. Great idea.

Perhaps you could be a little clearer.

Businesses are leaving IL and CA in droves, thanks to the states' hostility towards business.

If you keep beating your dog, don't be surprised if it runs away.

 

[FiscalSanity]

Lord,

Your right, targets and goals are absolutely necessary for a succesful business. However, those numbers have to be realistic, and my experience has shown me that most business's don't do well in that area. By there very nature CEO and Sales managers tend to be optimists, and they almost always end up budgeting for higher sales then they can realistically deliver. We accountants tend to be pessimists, and we point out that those budget goals are too high.

The problem with poor sales budgetting is that in todays business world it can have a serious impact on profit margins. For example, let's say you budget to sell 10,000 units of item A this year. To be price competitive you can't sell them for more then $20 a unit, and you have $5 worth of overhead cost associated with every unit. Thus, you can't pay more then $15 a unit and break even. Your purchasing people can get them for $14.99 a unit but if you sell at least 50 the factory will give you a $1 a unit rebate. Now of course the salespeople are going to insist they can sell enough of the item to get the rebate, so they budget a profit of $10,100. But what happens if they don't sell enough of that item to get the rebate? Instead of making $1.01 off of every sale they are now making $.01 off of every sale. The relative difference is cost of goods is minimal, but the difference in profit is immense. $.01 on every item sold, or $1.01 on every item sold.

 

[spectrumc01]

Lord,

Your right, targets and goals are absolutely necessary for a succesful business. However, those numbers have to be realistic, and my experience has shown me that most business's don't do well in that area. By there very nature CEO and Sales managers tend to be optimists, and they almost always end up budgeting for higher sales then they can realistically deliver. We accountants tend to be pessimists, and we point out that those budget goals are too high.

The problem with poor sales budgetting is that in todays business world it can have a serious impact on profit margins. For example, let's say you budget to sell 10,000 units of item A this year. To be price competitive you can't sell them for more then $20 a unit, and you have $5 worth of overhead cost associated with every unit. Thus, you can't pay more then $15 a unit and break even. Your purchasing people can get them for $14.99 a unit but if you sell at least 50 the factory will give you a $1 a unit rebate. Now of course the salespeople are going to insist they can sell enough of the item to get the rebate, so they budget a profit of $10,100. But what happens if they don't sell enough of that item to get the rebate? Instead of making $1.01 off of every sale they are now making $.01 off of every sale. The relative difference is cost of goods is minimal, but the difference in profit is immense. $.01 on every item sold, or $1.01 on every item sold.

Fiscal, let me ask this. When the sales force fails to achieve their goals do they take the hit for their failure or do they take it out of the workers raises and benefits? My expierience says it comes out of the workers side as the owner will take his Cost of living raise per year regardless.

 

[FiscalSanity]

Spectrum,

It all depends on what sort of a contract the sales people are working under. Generally any sort of commission is calculated as a percentage of the profits on the sale, not on the sale price of the item. That being the case, the lower the profit, the lower the sales persons commission check. Some salesmen do get a flat percent of each item sold, but in those cases that commission is already built into the items price and the sales person usually don't have a lot of leeway on pricing. It really varies a lot from industry to industry and company to company.

When it comes to company owners pay, they generally take their money out of the business in three ways, only one of which is directly effected by the current periods profits. First, they pay themselves a salary as CEO or some other officer of the company. Second, they have various personal expenses that they can funnel through the business and treat as business expenses. Cars, insurance, cell phones, etc. They don't get to write the full value of the item off at tax time, but it's still reducing their taxes instead of being treated as income. Finally, they take money out of the company in the form of bonuses. Those can occur anywhere from monthly to annually, and since the amount available for their bonus is directly related to that periods profits having a bad month, quarter, or whatever can make quite a difference. They can also take profits out of the business as dividends once the years books are closed and the profit calculated, but usually small companies make sure they don't show a profit so that doesn't happen on a regular basis.

Keep in mind that smaller businesses tend to have more cash flow issues because they don't have the sort of strategic reserves that larger companies can muster. The smaller the business is the closer to the line it tends to run. In those cases the owners have to watch every penny like a hawk and they can't afford to pay themselves much more then they do their employees, and they pick something that's sensible and has a reasonable price to serve as their company car. It's only when the business starts to get big enough that they don't need to spend every minute drumming up business and making sure things run right that the salaries start to creep up and the perks start to become questionable (well, at least if the owners have any brains).

 

[spectrumc01]

Spectrum,

It all depends on what sort of a contract the sales people are working under. Generally any sort of commission is calculated as a percentage of the profits on the sale, not on the sale price of the item. That being the case, the lower the profit, the lower the sales persons commission check. Some salesmen do get a flat percent of each item sold, but in those cases that commission is already built into the items price and the sales person usually don't have a lot of leeway on pricing. It really varies a lot from industry to industry and company to company.

When it comes to company owners pay, they generally take their money out of the business in three ways, only one of which is directly effected by the current periods profits. First, they pay themselves a salary as CEO or some other officer of the company. Second, they have various personal expenses that they can funnel through the business and treat as business expenses. Cars, insurance, cell phones, etc. They don't get to write the full value of the item off at tax time, but it's still reducing their taxes instead of being treated as income. Finally, they take money out of the company in the form of bonuses. Those can occur anywhere from monthly to annually, and since the amount available for their bonus is directly related to that periods profits having a bad month, quarter, or whatever can make quite a difference.

Keep in mind that smaller businesses tend to have more cash flow issues because they don't have the sort of strategic reserves that larger companies can muster. The smaller the business is the closer to the line it tends to run. In those cases the owners have to watch every penny like a hawk and they can't afford to pay themselves much more then they do their employees, and they pick something that's sensible and has a reasonable price to serve as their company car. It's only when the business starts to get big enough that they don't need to spend every minute drumming up business and making sure things run right that the salaries start to creep up and the perks start to become questionable (well, at least if the owners have any brains).

is this applicable to small businesses that are passed down from family member to family member?

 

[FiscalSanity]

Yep. Actually, those are the kinds of companies i have the most experience with on the accounting side. I spent 12 years in business management working for a couple of fortune 500 companies before i decided to switch careers, so I know the big companies from a management perspective.

Private family owned companies of any size can do a lot of things that most people don't realize. It's very easy for them to pay for things through the company as business expenses as long as they aren't stupid about it. I know of one family business(not my current employer) where every member of the family is carried on the books as either an officer of the company or in some management position even though only 2 of the 6 actually ever come to work. All of them have houses that were paid for by the company. All of them draw some sort of salary from the company on each pay day, and get quarterly bonuses. The mom of the family (who is retired) is carried on the books as the chairman of the board and spends her time traveling around the country in her Winnebago on the company dime. She stops in and see a client or two along the way on each trip, so it's all a business expense.

Now, the only reason this is a problem is that most companies choose to set themselves up as corporations to limit the owners personal liability for the company debts. When the become a corporation and gain that limit to liability it is with the understanding that from that point forward that company and personal expenses are to be kept strictly seperate. The money in the company isn't theirs to do with as they wish anymore, because until it's paid out in the form of dividends on the profits it's not their money. Whether the owners want to admit it to themselves or not, that's what they did by accepting corporate status instead of being an old fashioned partnership or sole proprietorship where you are individually held responsible for the debts of your business.