Protecting Your Business - Financial Controls

I would like to thank Diane for her comments. What brought me great satisfaction was the part of her comment that said, " .....it forces me to think about how I run my business." That is one of my major objectives in writing this blog, that is, to get business people to THINK AND TO ANALYZE how they are running their business.

All too often we all get into a rut or a comfort zone. We continue to do things, both business and personal, because we have become comfortable doing them that way. We don't take the time and effort to ask ourselves, "Is there a better way?" No consultant, coach, or whatever a person chooses to call himself or herself can be an expert in all businesses. I have often had people say to me, "How can you help me with my business? You don't know anything about running an X company." The answer is quite simple. A good consultant or coach forces you to THINK AND ANALYZE how you are running your business. Maybe I can't tell any of you how to best manufacture your product or sell your services, but I can ask the questions and discuss the issues to force you to think and to analyze. We will discuss this more in future postings. Now onto the subject at hand.

There are many ways to protect your business. When people think about protection, they think about such areas as insurance, lawsuits, incorporation, etc., and we will be discussing all of those issues in the near future. The one protection that most companies neglect is financial control. I have seen embezzlement take place in major corporations (including a bank where I did business), medical offices, and small service companies. Any business with poor financial controls is a candidate for embezzlement. I have seen embezzlement by partners, long term trusted employees, and the newly hired person.

No system of financial controls will guarantee the prevention of embezzlement. However, a good system will accomplish two objectives -(1) make it extremely difficult to embezzle, and (2) catch the embezzler quickly before he steals a lot of money.

Here are two short real-life examples. A computer service business had two partners. One was Mr. Outside who was responsible for sales and the other was Mr. Inside who took care of all of the administrative duties. Mr. Outside was happy as long as he only had to sell (he really disliked "paperwork and numbers") and as long as there was a nice balance in the bank account. One day Mr. IRS Agent visited the company. Mr. IRS Agent informed Mr. Outside that "no withholding deposits had been made for the past six months." Mr. Outside was astonished. It turns out that Mr. Inside had been keeping the money - along with some other funds - for himself. The company was out of business seven months later and Mr. Outside was near bankruptcy and looking for a sales job.

The second example involves Dr. T and his long-time trusted office manager. Dr. T liked his profession but just like Mr. Outside, he really didn't like paperwork. Mrs. Long-Time Trusted Employee was more than happy to handle everything herself. One day Dr. T received a call from Mr. Patient who complained that his insurance company had paid Dr. T but he was still getting bills from Dr. T's office. Well, you know the rest of the story. Dr. T survived, but his bank account was about $75,000 lighter.

You need to follow three very important policies for financial controls - (1) division of duties and responsibilities, (2) personal oversight, and (3) vacation policy. Division of duties makes it more difficult for an embezzler to hide what he is doing. Personal oversight enables you to catch the person quickly. Vacation poilicy requires someone else to perform the duties which the employee is on vacation.

Although it is impossible to list all cases in this posting, let me give you some examples. Under the topic of division of duties, the person who makes the payroll withholding deposits should not be the same person who opens the mail. Why? If withholding deposits are not made, you will receive a notice from IRS via U.S. mail. Do you want the person who stole the withholding deposit to receive the notice? (I do recommend outsourcing your payroll for that reason and for others that I will discuss in future postings). The person who purchases the inventory should not be the same person who records the receipt of that inventory. The person who pays the bills should not be the same person who balances the checkbook.

I can hear you now. "I am a small company. I don't have all of those different people." In that case, YOU had better be the other person. If you feel that you are not knowledgeable enough, what should you do? You have two choices. You can learn by taking classes. Your local community college probably offers accounting classes that you can take. Your other choice is to outsource the function to your CPA. He or she may have the resources themselves or they may be able to recommend an accounting service that can help. Your CPA is also a great resource in reviewing your overall funancial controls.

As for personal oversight, it is quite simple. First, get into the habit of spot checking ALL financial duties such as checking vendor balances, receivable balances, physical inventory, etc. Secondly, I always selected what I considered to be a major protection item and performed that duty myself. That item is balancing the checkbook and reviewing cancelled checks. I have always said that I can't guarantee that no one would embezzle from me, but I could guarantee that I would catch them at the end of the month.

Finally, beware of the loyal financial employee who never wants to take time off. There are many stories (read the early history of the Hormel Company) about cases of embezzlement that were discovered by employees who were substituting for someone on vacation when they noticed that something seemed out of line.

Remember, YOU and YOUR FINANCIAL CONTROLS are the first line of defense in protecting your company. Don't neglect that duty.

Thanks for reading this blog. If you enjoy it, please pass the name of our site on to others who may enjoy it as well.

Two Tips on Financial Forecasting

Before I begin this posting, I would like to thank "professorola" for the comments on the last posting. Some valuable points were made. I suggest all readers take a look at them.


The last few postings have been discussing the importance of keeping score for your business. You can't make good decisions without knowing the score. A financial forecast or budget is part of that score.

So what is the best way of developing a cash flow or P&L Forecast? Well, I really can't say that there is one best way. I can say that I have two important rules that I have used for my own businesses and that I always recommend to my clients. The first rule is to start at zero (zero-based budgeting).

Most people want to take the easy way out when developing a budget, that is, they take last year's numbers and add or subtract a percentage. "Let's see now. Our insurance premium averaged about $500 per month last year so I'll add 10% and make it $550 every month this year." In my opinion, you might just as well throw darts at numbers. You need to start at zero. Why? There are two very important reasons.

First of all, if you don't start at zero, you are not questioning whether or not the revenue or expense item should exist next year. Instead, you are assuming that it is a valid revenue or expense item which will most likely increase or decrease. While that may be true for some items, it is not true for every item. If you take a hard look, you may find that you can eliminate some expense items. You also need to consider that new expenses may come into existence. You need to analyze whether or not you will have the same revenue generators next year. In addition, while it may be valid that the item will go up or down, simply adding to or subtracting from the previous year's actual expense or revenue assumes that you did a good job controlling that item last year. Maybe you did - but maybe you didn't. You need to start at zero if you want to have a solid forecast.

Secondly, when adding a percentage, most business owners add percentages that are typically too high because they "want to be conservative." That is a very dangerous practice. When they overspend, they feel good because "they are on or below budget." Wrong! They actually have overspent. Their "conservative" budget has given them a false sense of success. Here is a simple example. Although a business owner believes that he will spend $300 per month on office supplies, he puts $350 in the budget. He then spends $340 per month. What conclusion does he draw? He concludes that he was under budget by only $10 per month. "Not too bad," he says. Actually, he was over his realistic budget by $40 per month.

Is zero-based budgeting a lot of work? Absolutely. But it is necessary if you are going to develop a realistic financial forecast.

The second rule I have is always budget to the lowest level. What do I mean by that? Don't have a line that says "utilities." You need a line item for gas, one for electric, one for the telephone, fax, water, sewage, etc. Don't just forecast postage. Forecast postage for payables, postage for marketing mailings, etc. The lower the level, the more accurate you will be with your forecast. It is just like baking a cake. If you put in the right amount of each ingredient, the cake will turn out just fine.

I encourage you to make comments. Your opinions and comments may be helpful to our readers. If you enjoy this blog, please pass on the site address to others. Visit our website at http://www.sentrabusinesssolutions.com/.

The Financial Forecast - Developing A Budget - Part I

In the last posting, I talked about the importance of knowing the score. If you don't know the score, you don't have enough information to make the right decision. Without a budget, you can't know the score.

Most people, whether in their personal lives or business lives, don't have a budget. They don't want to take the time and effort to create one. Why? The most common excuse I hear is, "I can't predict the future." They feel that budgeting or developing a financial forecast for their business is a waste of time because things change. .......and they are right - things do change. You get new competitors, new products are developed, new government regulations come into play, the economy changes, etc., etc., etc. Nevertheless, you have to plan. What most people miss are two very important factors. The first factor is that your plan is a means of measurement, not an absolute. The plan is there for analysis -so you can ask the "why" questions concerning your variance from the plan. Those "why" questions are vital to your success. The second factor is that the process of developing your financial forecast forces you to think and analyze BEFORE you make your decisions. Let me explain the second factor first.

There are two financial forecasts that every business should have. You should forecast cash flow and you should forecast P&L. I strongly recommend that you do both but if you only do one, do cash flow. Why? CASH IS KING. Businesses - large, medium, or small - don't survive without cash. You can't pay your employees or your suppliers with receivables or inventory. You need cash. So many new entrepreneurs focus on the P&L statement instead of on CASH FLOW. Profit is great but keep in mind that the P&L statement does not reflect what your cash position is.

OK, let's get back to the forecasting process and how the process itself helps you. No matter which part of the process you are working on, you need to think and analyze your business. If you are working on the cash in side you are analyzing how your cash comes in with questions such as:

• Which sales are cash sales and which sales are on credit?
• How many of the receivables will become cash in 30 days, 60 days, 90 days?
• Can I get more cash sales and less credit sales?
• Do I need a line of credit from my bank because of the amount of credit sales I have?
• How high should that line of credit be?
• How do I collect from deadbeats?
• Should I charge a late fee for people who take more than 30 days to pay?
• What percentage should that be?
• When do I turn over deadbeats to a collection agency?
• How many accounts will never pay?
• What dollar amount and percentage will the collection agency collect for me?
• What will my collection costs be?

If you think about your particular business, you can probably add another 10 to 20 questions to my list. The important factor is to THINK AND ANALYZE. Don't just put numbers into a spreadsheet.

The same is true on the cash out side of your cash flow forecast. Think about the money you are spending. The first question is, "Do I really need to spend money on that item?" If so, then you need to consider the following list of questions:

• Is it better to pay less and pay cash or is it better to pay more and get 30 day terms? (Hint: There is no right or wrong answer. What is best in YOUR situation?)
• Should I pay cash to get a lower price and pay for it with my line of credit?
• What is happening with prices on particular items I need? Are they stable, going up or going down? You need to consider that when forecasting.
• Do I have multiple suppliers or do I have just one supplier - and am I at the mercy of that supplier for price increases?
• Can I get competitive bids?
• Should I buy volume to get volume discounts or will I then have too much cash tied up in inventory?
• How should I pay my employees - weekly, bi-weekly, monthly?
• Should I pay all employees at the same time or can I have different positions on different pay schedules?
• Is my rent (or property taxes if you own) likely to increase soon? Is there anything I can do about it?
• Do I really NEED to be spending this much on rent?
• What equipment will most likely need to be replaced soon?
• Have I considered maintenance costs, breakdowns, etc.?

Once again, I am sure that you can add many more questions depending on your business. The point, once again, is that the process itself, regardless of the numbers, causes you to THINK IN ADVANCE.

In the next posting, we will discuss the best ways of developing the financial forecast for your business. As always, we invite you to post your comments about this blog and to make suggestions about any future topic.

The Business Scoreboard

Let's suppose you are the head coach of your favorite professional football team. You are in the Super Bowl and there are 3o seconds left in the game. You are on your opponent's 40 yard line. The big question is .... What play do you call?

Your answer will most likely be ..... "What is the score? Is my team winning by 28 points or are we losing by 2 points?" The score will dictate which play you call. You are certainly not going to call the same play if you are losing by 2 points that you would call if you are winning by 28 points.

The same is true in business. The score will determine which business play you call. You have to know your business score. Just what do I mean by "business score?" For the typical small and mid-size business, there are five items that make up what I call the business score.

• Cash on Hand: How much cash do you have NOW? How much is in the bank?
• Receivables: How much do you have and when will they become cash?
• Payables: How much do you owe and when do you have to pay it?
• Budget variance: Are you on budget with your P&L and Cash Flow Statements? If not, are you better or worse? WHY?
• How much gross profit (margin) do you make on each item you sell?

To be successful over the long term, you must constantly monitor the five items I have listed above. Without knowing each of the items above, you can't make a good business decision. You can't call the right play. Just think about any sport. Does Tiger Woods play aggressively or conservatively? To decide, he has to know where he stands against the competition.

In the case of a business owner, she has to decide whether or not to take the order even though her profit margin will be only 25% of her normal profit margin. Should she sponsor the local charity race? Is business bad enough that she has to lay off her best employees? Without a scoreboard that shows her business "score," how can she decide what to do?

To keep score, three things are necessary. First, you have to have a good accounting system. It does not have to be complicated or complex. But it has to provide the reports you need to keep score. Secondly, you need to update it at least weekly so you can get reports that are CURRENT. Getting one set of reports at the end of the year won't do you any good for decisions you have to make all year long. Finally, you have to take the time to review and analyze the reports. Don't tell me you are too busy. You can't win the game if you don't know the score.

Here are two very real situations of what happens when you don't keep score. A friend of mine opened a restaurant in a mid-size city in Minnesota. Despite all that he knew he should do, he was always too busy to keep score. Finally, as money was running out and he was about to go out of business, he decided to look at his gross margin. He discovered that he was selling most menu items for less that his food and labor costs. One month later he closed the doors.

Three gentlemen I know started a real estate related business in a southern state in the late 1990s. Sales grew rapidly and the checkbook always had a large balance. They had plenty of money to hire more people, buy more office equipment, etc. Since the checkbook always had a large balance, they thought they were business geniuses. The only part of the score that they ever looked at was the checkbook balance. Of course, that is important, but it is only one factor of the company's score. They never looked at payables and receivables. Suddenly, the real estate market in their area went down, way down. The checkbook balance was significantly smaller. It was then that they started to look at the other components of the score. Too late! They had a great deal more in payables than receivables. For the last few years they thought that their expenses seemed really high, but they had not done budget planning so they had nothing with which to compare them. Six months later the company no longer existed.

Do I tell you about these true stories to scare you? YES, I DO. It can happen to you and it probably will if you're too busy to keep score.

The next posting will discuss "how" - how to budget and how to keep score. Please post your comments. We are always anxious to know your opinions. Visit our web site at http://www.sentrabusinesssolutions.com/. If you want to email me directly, you can email ron@sentrabusinesssolutions.com. Thanks for reading our business helper blog.

Employee Documentation

I am sure that this sounds familiar to you .......

• He said ....... She said


• I said ..... You said


• We said ..... They said


• It's my word against your word


• .....and on and on and on.

When employee behavior is not documented, it becomes difficult to remember exactly what happened and even more difficult for the business owner or manager to have any credibility. I can hear your objections now. "Document? Don't you know how time-consuming that is? Are you aware of how much effort it takes? I'm too busy to stop what I'm doing to document that my employee came in late for the third time in five days. I have many important things to do. After all, I have a business to run."

I have heard all of that before. Well, I have news for you. Employee documentation is an important part of running that business. If you have been reading this blog, you know we talked about the importance of hiring the best employees because employees represent you and your company. We said it was very difficult predicting who would turn out to be a good employee. Well, when you have chosen the wrong employee (and we all do that from time to time), or when a good employee goes bad for any one of several reasons, you have to be able to take the proper action.


The opposite is also true. When an employee has performed exceptionally well and you want to give an employee a raise or promotion, you want to be able to justify your action. You want to give raises and promotions for the right reason - because of job performance. And you certainly don't want to be accused of showing favoritism. Thus, whether you want to terminate, discipline, give a salary increase, or promote an employee, documentation will be a major ally in accomplishing the task.

Here is what has worked well for many business owners and managers. The day before the employee starts work, you have their employee file prepared. It contains the standard employee documents such as their application, resume, W-4 form, I-9 form, etc. It also contains an "employee documentation form." That form will be used to record those action which will justify your future decisions - salary increase, no salary increase, promotion, demotion, discipline, termination, or whatever course of action you are considering.

The form should contain the date that the behavior or situation occurred and the date you are making the entry. It should contain ample space for you to describe what occurred, i.e. employee arriving late, calling in to report off, receiving a high compliment from a customer, helping a fellow employee achieve a sale, etc. Finally, it should have place for the employee to initial and date to acknowledge that you reviewed the situation with him and he is aware that it has been recorded in his file.

Document quickly after a situation has occurred. The more time that elapses, the harder it is for you to recall exact details - and the more likely you are to let the actions "slide."

With this kind of documentation, there is no future "I said .... you said." It is all recorded in black and white with both parties having signed in agreement to what occurred. All too often an owner or manager says, "That is the fourth time you were late this month," and the employee says, "No, I was only late one other time." He asks the owner to name the dates and the owner is sure he was late but can't remember when. All credibility is gone.

Yes, it is time-consuming to document. It takes time away from other things that you would probably enjoy doing. Some business owners have difficulty talking about the unpleasant subjects to their employees. If you do, then you need to either learn how, or get out of management. Disciplining employees is as important to a business owner as disciplining children is to parents.

Just remember, the documentation form is your ally. It helps protect you, your business and your employees, and it will be an important tool for performance reviews.

In future postings we will discuss the performance review, employee motivation, and management by objectives. Reader comments are always welcomed. Readers are also encouraged to suggest any topics that they would like to see discussed in the future.

The Employee / Policy Manual

Developing a marketing program is fun. Taking a customer to dinner is fun. Making a big sale is great fun. Writing an employee or policy manual is not fun. It is grueling work. Nevertheless, it is very necessary.

An employee manual provides two very useful purposes. First, it explains to your employees what all of your policies are - and I do mean all. Secondly, it provides protection for your business. If you have a well written manual which is properly distributed to all employees, no employee can ever say they "didn't know or didn't understand." Everything is spelled out in black and white.

Keep in mind that your employee manual is not written in stone. It can be changed often as new policies need to be implemented or existing policies need to be clarified or explained in more detail. Let's begin by discussing the first purpose.

I usually start the employee manual with general rules of employee conduct. I certainly can't list everything for every type of business in this posting, but I will provide some detailed examples. Suppose you start with your dress code. How do you expect employees to dress? You need to be very specific. What I think of as business casual may not be what you think of as business casual. If the last place you worked allowed you to wear jeans to the office, you may think of jeans as business casual. I, on the other hand, may think of business casual as a nice pair of dress slacks, a dress shirt, but no tie. That is why it is important to be specific.

Other items you should cover under the topic of employee conduct are:

• personal use of company property (computers, cell phones, office supplies, etc.)


• absenteeism


• tardiness


• altercations with other employees, vendors or customers and general disruptive behavior


• safety rules (depending on your business, this topic may be a separate section)


• employee theft


• sexual and other forms of harassment


• smoking


• use of alcohol and illegal drugs


• drug testing policy


• personal visits by friends or relatives


• illegal activities on company time and property

It is important to state what the penalty could be for violating a policy. I use the word "could" because your attorney may advise you to state it that way. For example, your manual may state, "Anyone absent three times in one year without a valid medical excuse may be terminated." If you substitute the word "will" for the word "may," then per your own policy, you would be required to terminate the individual. The word "may" provides an option. I am not an attorney and do not give legal advice so I suggest you receive legal counsel from your attorney on such matters.

A second section should cover employee compensation. You should discuss such items as:

• pay ranges for job classifications (this will depend on the size of your company)


• time frame for performance reviews


• types of pay raises - merit, length of service, etc.


• method used for determining commissions if they apply. This should include what happens if an employee starts the sales process but then quits or is terminated prior to the sale being completed. It should also cover split commissions, etc.


• overtime pay


• exempt versus non-exempt employees


• ..... and any compensation matter unique to your company

A third section should cover company benefits. List the benefits provided. Once again it is important to be specific. Do the benefits start on the first day of employment or do you have to be employed for 90 days? What family members are covered? What benefits are paid for by the employee? If an employee has used up all of her vacation time, can she take time off without pay? Remember, don't leave a chance for assumptions. List any common benefits that you don't offer. For example, if dental is not included, say so. This way there will be no confusion.

A fourth section should discuss performance reviews. Describe in detail when and how performance reviews are conducted. It is important to let employees know from day one that they will be evaluated periodically on a formal basis. And .... it is extremely important that you adhere to the schedule and procedure that you have outlined in the manual. If either changes, change the manual.

As I previously stated, depending on your type of business, you may need a separate section on safety. Some businesses will have sections that are unique to their industry such as customer record retention, locked file cabinets and desks, information that can or cannot be left on voice mail, email retention, shredding of documents, etc.

I think by now you get the idea. As I previously stated, I can't cover all policies for all types of industries. The important thing for you to remember is to cover everything you can think of and be specific. Here are two other important factors. First, do not distribute an employee/policy manual without first having it reviewed by your attorney. You need to make sure that none of your policies violate any types of laws. Second, when you distribute the manual, include a page which the employee signs and returns to you. The page should state that the employee has read and understands the content of the handbook. I always number my manuals and keep a log of them. I also include on the signature page the revision reference (A, B, etc.) and the day of the revision. Each time the manual is revised, I require the employee to sign another page stating that he received the manual and understands the contents. Of course, you have to give the employee adequate time to read the manual before returning the signature page.

The second purpose of the employee/policy manual is to protect the company. Here are two personal examples. I had a sales employee quit prior to a sale being completed. My manual stated that an employee had to be employed at my company when the sale was completed (including receipt of payment by the customer) in order to receive the commission. When she did not receive the commission, she filed a complaint with the state Department of Labor and Industry who began an investigation. I simply sent them a copy of the manual and her signature page to the Department of Labor and Industry. That ended the investigation. They said she had no basis for her complaint.

A second case involved an employee with one of my other businesses. He said a manager had promised him that he would receive a 10% raise at the end of his third month of employment. When he did not receive it, he sued my company in small claims court. When my manager had his turn to speak, he simply showed the judge a copy of our manual which stated that no one was eligible for a raise until they had been employed for six months. He also showed the judge the signature page. Case closed.

In both examples my company was protected by the manual. Had I not had those policies in writing and had I not had the employee sign the page stating that he/she understood the contents, I could have lost both cases. Both would have cost me time and money.

A good employee/policy manual can be a great friend to a business owner. No matter how busy you are, no matter how much you would rather do something else, make sure you have a comprehensive manual.

Please feel free to comment on this or any of our postings. Your suggestions for future topics are always welcome. Visit our web site at http://www.sentrabusinesssolutions.com/.

Employee Orientation and Training - Part II

Orientation and training is certainly not a glamorous part of running your own business. However, it is an extremely important part if you want to be successful for the long term. Notice I added the words "long term." I have seen many short term successes over the years. These are companies who happen to hit their industry at the right time. Maybe they became a home builder during a housing boom in their area. Maybe they got into the mortgage business during the refinance boom. Maybe they started selling sports memorabilia when the professional football team in their city won the Superbowl. It is kind of like the "one hit wonders" of the entertainment industry.

If your objective in owning a business is to start the business, build up the sales quickly and sell it a year or two later, then you certainly don't care about building a strong foundation. On the other hand, if you intend to own the business for many profitable years, then a good orientation and training program is a vital part of that foundation.

The purpose of an orientation program is to enable new employees to become familiar with the company as a whole. The program should present the company's vision, goals, policies, etc. It should also take care of "housekeeping" matters such as direct deposit for paychecks, insurance forms, vacation requests. The employee manual should be given to the employee at this time.

Training is teaching the new employee the duties and responsibilities of her new position. While an accountant and a sales person may be in the same orientation meeting, they would most likely not be in the same training session.

"But Ron," you say, "I am a really small company with only two employees. I don't need to do all of this." Yes, you do - even if you only have two employees. Do you want to have two GOOD employees, two mediocre employees, or two bad employees?

The Orientation Session: There are two reasons to have a formal orientation session. The first is make the employee feel as though he is part of the team. You make him feel welcome. He meets the other team members. The second is to learn about the company. These are two highly integrated objectives. The more an employee knows about the company, the more he will feel that he is a part of the company. Some of the items which should be covered in the orientation program are:

• History: Tell your new employee about the history of your company. When was the company started? Why was it started? Where? Is it in its original location or has it moved? Who was the founder? Even if you are the owner and this is your first employee, give him this type of information.


• Vision, Mission, Goals: Show your new employee your mission and vision statements. Explain why you chose that particular vision for your company. Tell her what your company's goals are. How can you expect her to help you achieve those goals if she doesn't know what they are? How can she feel that she is part of the team if she doesn't know where the team is going?


• Employee/Policy Manual: Review your policies with your new employee. These policies should be in writing in the form of an employee or policy manual. The manual should contain all policies from dress code to vacation requests. Yes ...... even if you just have one employee you should have a manual. (We will cover the content, structure and purpose of the policy manual in the next posting).

The Training Program: Don't hire an employee if you don't have a training program in place. Let's go back to the professional football team that drafted the college quarterback and the recently graduated surgeon that we discussed in the last posting. You thought it was ridiculous for the team not to teach the quarterback the plays and have him practice with the team prior to his first game. You certainly didn't want to be the patient receiving the heart transplant from the untrained surgeon. Why do you think that it is okay to have your customer (the person who puts money in your pocket) receive a product or service from your untrained employee?

When you develop your training program keep three important concepts in mind.

• Assume the new employee knows nothing! Don't say, "Well, I am sure that you know X, don't you?" How do you think she is going to answer? Whether she knows or not, with a question phrased in that manner she is going to say, "Of course I do." Start from point zero and train/teach everything. Even if she knows already, the training will be a good review.
  
• No matter how simple you perceive the job to be, have a training manual with all of the instructions. Have checklists in the manual so employees have to remember nothing. Everything is in writing for them. Develop a procedure that requires them to use this checklist and a procedure whereby you can follow-up to make sure they were used. It doesn't matter whether you are hiring a custodian, a painter, an accountant, a marketing VP, or whatever. Have a training manual for the position.


• Follow-up, follow-up, follow-up and follow-up some more. As I said in the last posting, Tiger Woods is the number one rated golfer in the world ......and he still has an instructor. He has someone watch his swing to help him get better. You need to watch your employees and help them get better. You should have a formal program to follow-up on their performance. Never let them (or yourself) stop learning and improving.

In the next posting, we will discuss the employee/policy manual. Please submit your comments and suggestions. You can visit our web site at http://www.sentrabusinesssolutions.com/.

Employee Orientation and Training - Part I

Selecting the right employee is only one third of the process of having a good employee. Suppose you have done the things that were presented in the last posting to put the odds in your favor when selecting an employee. Suppose you are successful - you have selected an employee with the potential to be a good, if not great, employee. Now what? What is the next step?

Many business owners stop at this point. They take the "sink or swim" approach. Or as they like to (defensively) call it - On the Job Training. Yes, OJT is a method of training employees, and yes, OJT can be an effective training procedure under the right circumstances. However, there is a huge difference between OJT and "sink or swim."

What I mean when I refer to "sink or swim" is that the business owner has given the new employee no orientation and no training. He simply says, "There is your desk," or "There is your equipment," or "There is the dining room and kitchen." And then he says, "Well, what are you waiting for? Get to work."

Imagine a professional football team drafting the number one college quarterback. The quarterback signs his contract. The coach walks over to him and says, "Welcome to the team. Our first game is at 1:00 on September 3. It's a home game. Be at the stadium about noon so you'll have time to find a uniform that fits you. See you then." How well do you think the quarterback - and the whole team - will perform?

Or what about a medical student who graduated from medical school last week showing up for her first day of work at the hospital and the chief of surgery says, "Welcome to General Hospital. You are scheduled to perform a heart transplant at 8:00 tomorrow morning. Good luck." How would you like to be the patient?

Both of those examples are absurd. But I have seen it happen over and over again in the business world. Why does it happen? Why do business owners fail to provide proper training? I believe there are three main reasons. First, everyone (even business owners) makes the assumption that what is easy for them is easy for everyone. What is common sense to them is common sense to everyone. Of course, that is not true. I know very little about trigonometry. I had one semester of trig in school and I really struggled with it. I didn't enjoy it. A few years ago, an employee of a client was trying to explain a trig problem to me that he was using for a machining operation. After his fifth try he said, "My goodness Ron, this is so easy. Anybody can understand it!" He just couldn't comprehend how I could possibly not understand the trig because to him, it was so simple. To me, understanding accounting and financial statements is so simple. It all makes perfect sense. Yet, there are those who have difficulty understanding it.

Obviously, a business owner knows the operations of her business very well. Otherwise, she wouldn't be in that business. To her, it is simple. Therefore, she unconsciously concludes that there is no need for her to explain it to the employee. Wrong!

The second reason that the business owner selects "sink or swim" is timing. Business owners have a sense of urgency. I believe they need a sense of urgency to be successful. However, employee training is an exception. The owner says, "We need the job done now because the customer is waiting" so a newly hired, untrained employee performs the task. The question is, "Do you want the job done correctly, or do you just want it done now?" You may lose a customer if the job is not done now, but you will certainly lose many customers if the employee never learns how to do the job correctly.

But it is not your fault, you say. An employee quit without notice and now you need the new employee to fill his shoes quickly. Well, shame on you for not having backup. Does that football team that we talked about have just one quarterback? You may not be able to afford to have employees sitting on the bench, but you can cross-train them.

The final reason is time and effort. It does take time and effort to train someone, either by the business owner or another employee. It is work that does not produce immediate profits. Owners do not like that kind of work. Training takes the trainer away from his own duties. My answer to that excuse is that it takes effort to be the number one golfer in the world. Tiger Woods practices EVERY day, not just when he feels like it. Even though he is Number One, he still has an instructor. If the number one golfer in the world makes that kind of effort to be the best, what kind of effort should you make to be the best in your business? He was voted Number One. He earned it by his performance. Your business has to earn it as well. It takes effort to be number one in anything, even business. If you want your company to be Number One, your employees have to be Number One.

The next posting will talk more about the orientation and training process. Please feel free to post your comments and also your suggestions for future topics.

The Hiring Process - Part III - The Interview

I don't know which is easier, predicting the Dow Jones Industrial Average one year from now or predicting which potential employee will be as good as you expect. Selecting employees is a very difficult process. In my 37 years of business experience, I have no idea how many hundreds - or maybe thousands - of potential employees I have interviewed. I do know that I have had my share of surprises.

Interviewing is not a perfect science. There is no method, system, test, etc. that will accurately and perfectly predict which employee will be a good employee and which will not. What you as a business owner must do is put the odds in your favor. That will give you the best chance - but no guarantee - for success.

Here are some suggestions that have worked well for others:

UNDERSTAND WHAT YOU ARE SEEING: In an interview, you are seeing the candidate at his or her BEST. He is wearing what he considers to be his best and most appropriate clothes for the interview. She is using what she considers to be her best manners. He is using his best vocabulary to describe his past responsibilities. She is being as respectful of your position as she believes necessary. He is using his best ....... she is using her best ......... etc., etc., etc.

If you are interviewing for a position which will deal with customers and you expect your employee to be dressed appropriately and be well-groomed, but the candidate's shoes aren't shined, his shirt is wrinkled, and he has a large spot on his pants, don't expect him to dress better after he has the job. This is his best - when he wants to get the job.

If the job candidate was disrespectful to the receptionist when she entered the building, don't expect her to show respect to her fellow employees once she gets the job. This is as good as she gets. You need to understand that what you are seeing is the best. It is all downhill from here. And don't think you are going to easily change those attributes after he or she is hired any more than you can change (or try to change) your fiancee after you are married. If you are pleased with what you see and hear, that's wonderful. If not, end the interview early.

Interview in Multiple Environments: Most business owners conduct one interview in her or his own office. That is fine to start. However, should the candidate get the job, he is not going to spend all of his time in the business owner's office. Depending on the position for which I am hiring, I may have one interview in my office, a second the next day on the golf course, a third a day later at dinner with the candidate and his/her spouse or significant other, and a fourth a day later in a conference room or other business setting. By doing this, I can see all sides of the candidate. What is her character like? Is she competitive on the golf course? Does she "bend" the rules? Does she treat the restaurant staff respectfully at dinner? How does she interact with her spouse? Does she allow him to talk or does she need to be the center of attention? Of course, not everyone plays golf so you may need to find another activity where you can test her character. But I am sure you get the idea. People prepare for the standard interview. They know how to answer the usual questions about strengths and weaknesses, goals, etc. Interviewing them elsewhere and not asking questions but just observing actions will tell you quite a bit about the candidate.

Get the Opinions of Others: I am a firm believer that two heads are better than one. Have one or two other people in your organization interview the candidate. It can be someone who will be a peer to the candidate or it could be a manager. The point is to get a second or even third opinion. The other interviewer(s) may see something that you missed -good or bad. If this is the first person you are hiring, ask another business person whom you respect to conduct the additional interview.

Don't Trust Their Word: "How are your writing skills?" you asked. "Oh, I am a very good writer," he replied. If you need someone who can write good reports, ask him to submit a sample prior to the interview. See for yourself. Don't just accept his word. If she has to be proficient in Excel, ask her to sit at the computer and show you. I recently worked with a client who hired someone based on her word. She said she was very knowledgeable in a particular accounting software. She was hired. Five weeks later she was gone. She barely knew how to open the program, let alone operate the software.

Do A Background Check: Do you really think that those three people he listed on his resume as references are going to say anything bad about him? Perform whatever background checks that are legally permissible. You need to know the truth.

I can see you shaking your head now. Is this guy crazy or what? Who has time to do all that?

You do. You have the time if you make it a priority. Remember, THAT EMPLOYEE WILL REPRESENT YOU AND YOUR COMPANY. Isn't it worth the time and the money to have yourself and your company represented well?

We all hear it every day - "You just can't find good help anymore." Yes, you can - if you look for it the right way.

Please submit your comments or suggestions for future postings. You can post your comments on this blog or email info@sentrabusinesssolutions.com.

The Hiring Process - Part II Pre-Screen Candidates

Do you really want to interview someone who doesn't want the job? Do you really want to interview someone who is not suited for the job?

I am a firm believer in weeding out job candidates before the interview. Don't waste your time or their time. Whether you need to fill the position of CFO, restaurant server, store manager, or delivery driver, there are ways of pre-screening the candidates to make sure that they want the job and to make sure they are suited for the job.

You are probably saying to yourself, "No one would apply for a job that they don't want." Of course they wouldn't - if they knew certain facts before the interview. Unfortunately, most times a candidate knows very little about the job prior to the interview.

Most times a job candidate applies because he or she is answering an ad. Sometimes the candidate has attended a job fair or similar event which has the purpose of attracting potential employees. Maybe the candidate heard about an opening in your company from an existing employee. No matter which method applies, none of them tells the candidate much about the job. It is impossible to describe the job in an ad or to discuss it fully at a job fair. Thus, the candidate comes to the interview not knowing much about the position at all. That is why a second stage or pre-screening stage is needed.

All interested candidates should be given some form of application package that they can read prior to filling out an application and submitting a resume. That package should contain DETAILED information about the job. If travel is required, how much? Is it one day every week or five days every week? Is the travel to small towns in the Midwest or places like London and Paris? Don't just say "Knowledge of Word and Excel is required." Be specific. What do you expect them to know and to be able to do with Word and Excel?

"But," you say, "I don't have that kind of business." Alright then, let's take a restaurant that is hiring servers. Here are some questions that should be answered BEFORE you even have the server complete a job application.

• Will the server be working the same shift each day?
• How often do servers change shifts?
• How long do they stay on the same shift?
• How many weekends per month are they expected to work?
• What holidays is the restaurant open?
• What percentage of the holidays does each server work?
• Does each server deliver the food from the kitchen to the customer's table or does the server just take the order?
• Does the server have to bus tables?

I think by now you get the idea. The answer to those and other similar questions will determine whether a person wants to apply for the job or not. Providing this kind of information in advance serves as a pre-screening process. It will save you many hours.

What about formal "job testing programs" for pre-screening employees? There are many types of programs available. Some are quite simple while others involve extensive assessments by highly trained industrial psychologists. They are generally only used for upper level positions but could be, and should be, used for all positions. Remember what was said in a previous posting. The employee who talks to the customer is representing you and your company regardless of what level position they may have. That employee is "the company" as far as the customer is concerned. (In future postings, we will discuss job testing in greater detail.)

Give some serious thought to your particular business. Don't spend hours interviewing someone just because they answered an ad. Know that the person you are going to interview wants the job and is suited for the job.

The next posting will discuss the interview itself.

Please feel free to post your comments and to submit suggestions on any topics for future postings. We invite you to visit our web site at http://www.sentrabusinesssolutions.com/.

The Hiring Process - Part I

If you want to have the best employees, you need to have a good hiring process. With most business owners, the process starts when the candidate walks in the door for a job interview. Unfortunately, that is too late. The hiring process must start long before that. It must start before you even start advertising that the job is available.

Clearly Define The Job: You can't hire the right employee and the best employee if you haven't CLEARLY defined the job. What are the tasks the employee needs to perform? What are his or her responsibilities going to be? How much authority will he or she have? I'll bet you are saying right now, "But with MY business, things change all of the time. Everyone has to wear many hats." You think that makes your business different? It doesn't. Every business faces changing times, changing regulations, changing products, suppliers, etc. Nevertheless, you have to plan. That plan includes the jobs to be performed and the employees who perform them.

That is another reason for hiring the BEST. When you hire the best, they can be flexible. And you need to build that feature into your requirements. What do you forecast as future tasks, responsibilities and authority as your business grows?

Define the Rewards: What is the starting compensation? When will I give salary and benefit increases? What promotions are available? Is a share of ownership a possibility?

Define the Requirements: What skills, education, and experience are required to meet the requirements of the job. PLEASE NOTE: If you use terms like "good communications skills, works well in a high-energy environment, good people skills," you are in a great deal of trouble.

What does "good communication skills" mean? I see it all of the time in employment ads. Does it mean you can write good reports? Does it mean you make good presentations? Does it mean your fellow employees like to talk to you? Have you ever met anyone who said that he did not have "good communication skills?" If you need someone who can write good reports, define the requirement as such.

What is a "high-energy environment?" (or other similar terms I see in ads to describe what the owner considers to be a busy - if not chaotic - environment). Define what specific requirements are really needed.

Define the Good and the Bad: No job is perfect. Be honest. What is the downside to the job? I have always been completely honest with candidates and told them what I consider to be the downside of the job. Why? I don't want them taking a job and then being surprised. That will result in poor productivity, distrust of my word, and an employee who will probably start looking for another job. All of that is bad. What is the upside to the job? Be honest as well. You're not going to try to sell the job to the candidate, but you will want them to know the advantages of working for your company.

Now you may be sitting there saying, "But I am not hiring a COO, I am hiring a janitor." Okay. How to you think it will reflect upon your company if a customer uses your restroom and it wasn't cleaned properly ... or your sidewalk wasn't completely cleared of snow and ice after the snowstorm .... or the dust is piled high on the bookshelves in your waiting room .... etc.? Whether you are hiring someone at the top of the organization or the bottom, you want to hire the best. To hire the best, you need the right hiring process.

Our next posting will discuss the pre-interview screening process. Please submit your comments and suggestions. They are always welcome.

Hire the Best Employees !!

I once saw an ad in a magazine by an employment agency. The ad contained a picture of an empty chair and the words, "It is better to leave this chair empty than fill it with the wrong person." Truer words were never spoken.

Nothing that you spend money on in your business is more important than employees - not your equipment, not your building, not your office furniture - nothing. Let me prove it to you.

I am an avid golfer. I am sixty years old and I have been playing golf since I was 15 years old. That means I have been playing golf longer than Tiger Woods has been alive. I am going to play a golf match against Tiger. The rules are as follows:

• I get to use the best golf clubs made. Tiger has to use an old set made 25 years ago.
• We are going to play a golf course that I have played over 100 times. I know the course and have a great plan for how to play it. Tiger has never seen the course and thus, has no plan.
• I get to have an experienced caddy who can give me great advice. Tiger is going to have to carry his own clubs and has no caddy to advise him.

Who are you going to bet on to win the match? What - you are going to bet on Tiger? Why? I have the best equipment, a great plan, a professional advisor, and I have more experience playing golf than Tiger does.

Of course, you are going to bet on Tiger. He has the talent and the ability. They overcome all of my "advantages." The same is true with employees. Who cares if you have a great plan if your employees can't implement it. Who cares if you have great equipment if your employees do not use it to its potential. Good employees will improve a bad plan. They will correct bad policies and procedures. They will replace bad equipment and get the most out of good equipment. Good employees will overcome other deficiencies in your business. Bad employees will never utilize your resources to their fullest potential.

Here is more food for thought. Your employees represent you and your company to your customers. All of their actions reflect upon your business. Suppose you walk into a Sears store to buy a new lawn mower. You observe two sales people standing nearby talking to each other. They look up and notice you but choose to ignore you and continue talking. You finally get tired of waiting and ask them for assistance. One agrees to help you. You ask questions about the various lawn mowers that are displayed. The sales person can't answer your questions. His general reply to all questions is, "They are all pretty good." You ask for more specific details. He rudely replies, "You can read the directions." and walks away.

You walk out of the store saying to yourself, "Sears employees are rude and give terrible service. I'm never shopping there again." You have condemned thousands of employees and an entire organization based on the behavior of two employees. That is the natural response. Why? Because those two employees represented Sears to you.

The same is true of every business. If you have bad service at an Olive Garden Restaurant you don't say that one server at that particular Olive Garden Restaurant is bad. You say that Olive Garden Restaurants have bad service. Why? Because that server represents the company to you. You don't know the CEO. You have never done business with the VP of marketing. Your contact with that company is that server.

When a baggage handler loses your luggage ..... when a mechanic doesn't repair your car properly .... when the receptionist at the law firm doesn't greet you properly ..... when the claims agent at the insurance company ....etc. .... etc. .... etc.

Do you want to spend thousands of dollars on marketing to attract customers and then have your employees chase them away? I don't think so. If money is tight, save it on anything other than employees. Hire the best, train them and train them and train them again, and reward them properly. Training will the subject of a future posting.

Your comments are always welcome. Please feel free to suggest any subject you would like discussed in the future. Visit our web site at www.sentrabusinesssolutions.com.

Customer Retention - Part III

Rule Three of Customer Retention: Support your customers or help solve a problem.


We all know that we should give good customer service. We all know that we should sell a quality product or service. Those are the basics. If you don't sell a quality product or service or don't give good customer service, you won't have to be concerned about customer retention. You won't have any customers to retain!!!!!

In Rule Three, I am talking about two things. First, by "support your customer," I am telling business owners that if their customer has a business, they should support that business. Suppose you own a hair salon. You have a client that owns a dry cleaning business. Where do you take your dry cleaning? If you want that client to be a loyal customer, don't you think you should also be a loyal customer?

I learned from my father (who owned his own business) many years ago that you should support those who support you. My father told us that these people put food on our table and we should return the favor.

What if you own a hair salon and you have two clients that sell the same product or service? That really isn't a problem. You let both clients know that you have his competitor as a client. Tell both of them that in the interest of fairness, you will be giving half of your business to one and half to the other. I have done this numerous times with my businesses and have gained their respect - and loyalty.

But, you say, what if a client sells a product that I don't need or use. No problem - if your client sells something that you don't need or use, you have two courses of action. First, can you buy it as a gift for someone else? Or, you can help the client promote his business. You can pass out her business cards to someone you know who can use the product. You can display her brochures in your salon. You can find out what kind of businesses she sells to in order to determine if there is someone you know in that industry. The more you help your customers and clients to be successful, the more loyal they will become to your business. If you are displaying their brochures and passing out their business cards, are they likely to go to your competitor?

And then there is always the question of price. What if I can buy the product somewhere else cheaper than I can buy it from my customer? Are you really going to ask that question? Just think about it for a minute - if it takes you that long to reach the correct answer. First of all, do you want your customers to price-shop you? Secondly, ask yourself, "Is it better to buy from a customer at a slightly higher price or lose the customer and spend money trying to replace him? Okay, I am glad we got that question out of the way.

What about those customers who do not own businesses? You can't buy from them. What do you do? That is the second part of Rule Three " ..... or help solve a problem."

Let your customers know that you are willing to help them. You can do so in many simple ways. If you have a retail store, you can have a bulletin board where they can display small ads for items they want to sell or are looking to buy. If you don't have a retail store, you can have a classified section of your newsletter. Let your clients know that they can place a free ad in your classified section. Perhaps they are looking for someone to help care for an elderly parent. Maybe they want someone to refer a good piano teacher for their son or daughter. Your newsletter will help them solve a problem.

Use your imagination. Tailor a way that best fits your business. Keep in mind that by helping in this manner, you not only build loyalty but you also differentiate yourself from your competitors. That will be the subject of a future posting.

You can also help by promoting their favorite cause. Maybe they volunteer for a non-profit organization and the organization is having a fund-raiser. You can display their posters for that fund-raising event.

Supporting a customer's business or helping them solve a small problem costs you NOTHING and it BUILDS LOYALTY. It helps you retain customers. Once again, ask yourself the big question. "Is it easier and less costly for me to support and help my customers or is it easier and less costly to replace that customer?" I think by now you know the answer.

Customer retention is a vital part of business success. Don't neglect it.

As always, you are encouraged to submit your comments and requests for a posting on a particular subject matter. You can visit our web site at http://www.sentrabusinesssolutions.com/.

Customer Retention - Part II

In Customer Retention - Part I, Rule One stated the importance of keeping in touch with current customers and clients.

Rule Two - Reward Current Customers with a Loyalty Program.

The airline industry was one of the first industries to popularize the loyalty program with frequent flier programs. (How they hurt their programs is the subject for another posting.) Any kind of loyalty program, as long as it provides a reasonable benefit to the customer, is good for your business.

Frankly, I see many bad loyalty programs which I believe harm a business more than they help it. Why? Because the reward does not provide a reasonable benefit. It is extremely important to remember that any program must be "win-win." You win by keeping the customer happy and keeping him as a loyal customer. The customer wins by getting something special or something free. If you develop a program thinking that you are going to fool the customer and be the only winner, your program will fail ..... and not only will it fail to bring in more money for you, but it will also most likely cause you to lose customers. A reward is only a reward IF THE CUSTOMER BELIEVES IT IS A REWARD, not if you are simply trying to make more money.

Let's look at an example. A restaurant develops a loyalty program that offers if you buy seven meals, you get one free. So far that is reasonable. However there is "small print." You can only get your "free meal" on Monday night (because that is the slowest night for the restaurant and they are losing money on Mondays) and you have to purchase a beverage with the meal (because after all, the owner wants to get some revenue from this offer and the beverage has a high profit margin). Besides, that is when the restaurant has those specials at a lower price to try to attract customers. Since the restaurant is selling at a lower price anyway, they are not giving as much away. Is the customer going to think that this offer is worth much? Probably not.

First of all, why is business slow on Monday? ....... because most people don't eat out on Mondays. So is the restaurant going to fool them with this offer? Is the customer's desire to eat out on Monday going to increase? That is highly unlikely.

"BUT" the owner says, I need the business on Monday. That is the day I am losing money. My restaurant is packed on Thursday, Friday and Saturday. If the restaurant is losing money on Monday - close on Monday. Don't open that day. That's no rocket science.

Okay, so how can the restaurant afford to let customers use their free meal on a busy night? Well, keep in mind what I said about "win-win." First, your objective is to reward (thank) the customer. Secondly, you want the customer to continue coming into your restaurant. That is your "win." If people are standing in line to get into your restaurant every Thursday, Friday and Saturday, maybe it is time to increase prices. An increase in price - even while losing a few casual (non-loyal) customers - will more than make up for the free reward meal. Analyze it. Do the math. And get rid of the "purchase drink" requirement. The customer will most likely purchase the drink anyway. Let it be his decision.

The same is true for any other business. Don't try to use your loyalty program to push slow moving products. The fact that it is a slow moving product should tell you that few people want it. Why would someone want it as a "reward"? Are you trying to fool the customer? If it is a slow moving product, DON'T CARRY IT IN INVENTORY!

It is important to remember that trying to fool the customer with any kind of offer is a very bad policy. I recently was in a shopping center when I saw a sign in front of a clothing store that said, "Buy one suit, get one free." Naturally, that got my attention so I went into the store. Of course, once inside, I found out that this offer only applied to certain suits. I looked at the suits. I had a good laugh. The suits to which the offer applied went out of style about 15 years ago. I walked out of the store thinking that I don't want to do business at that kind of establishment. And yes, I did tell many other people not to bother going into that store.

Don't try to fool the customer. The loyalty program - or any other offer - has to be "win - win."

RULE TWO OF CUSTOMER RETENTION: Develop a good loyalty program - and make sure your customer will feel that he or she is receiving a reasonable benefit for being a loyal customer.

Please remember that your comments and suggestions for future topics are always welcome. You are also invited to visit our web site at http://www.sentrabusinesssolutions.com/.

Customer Retention - Part I

I have often seen ads that contain a special discount. To my dismay, the discount is followed by the words, "New Customers Only." When a business offers a special discount to new customers only, what is that business saying to its existing customers?

Here is an example. A chiropractor in my area has been running an ad for a free massage for (you guessed it) "New Patients Only." Now suppose you had been a patient of that chiropractor for five years. You have always paid full price for your chiropractic services and for other services she offers such as massages. Now you see this add that says new patients - those who have never spent one single cent with this chiropractor - can get a FREE massage. If you want a massage, you have to pay for it. You have been supporting her for five years and you get nothing. How does that make you feel? Do you think your chiropractor appreciates your business? Does that ad make you feel important?

I had this happen to me with a vendor that supplied a service. He was passing out discount coupons for "new customers only." I quickly informed him that I had better receive the same discount or else I was taking my business elsewhere. I got the discount.

Any successful business person knows that it is much more expensive to get a new customer than to keep an old one. Yet where do most business people put their emphasis when it comes to marketing? Please do not think that I am saying that getting new customers is not important. It certainly is. I learned way back in Marketing 101 that every business loses about 5% of their customers every year through no fault of their own. They move. They die. They retire. Their sister-in-law becomes your competitor so they buy from her. Your customer's business goes bankrupt. For all of these reasons - and more - you have to get new customers. I understand that. However, what I am saying is that most businesses place too much emphasis on getting new customers rather than keeping their existing customers and working to have their existing customers become better customers. A business just can't overlook the importance of their existing customer base.

Let's take some simple examples. Suppose you have 100 customers. Each month they each buy 10 of Item X for $5.00 and 10 of Item Y for $10.00. Just think if you could get them to buy one more of each item each month. Or .... what if you could get them to buy one less of Item X and one more of Item Y each month. Better yet, what if you could get them to buy all 20 of Item Y and none of Item X. Whether you increase the volume that they buy or whether you improve the mix of the products they buy, you are going to make more money. The best part of increasing the volume from current customers or improving the mix is that you are still dealing with 100 customers and they are customers who you already know .....and ......who already know and trust you. That is much easier and less expensive than trying to find 10 new customers to get to know and trust you.

So how do you retain customers? The first step is building a good customer database. As I discussed in the last posting, you must know who your customers are and how to contact them.

When I say, "Who they are" I am not just talking about their first names. You need to learn about their family, hobbies, favorite sports team, etc. Why? Because when you show anyone that you have an interest in them, they feel important. Everyone, including me, likes to feel important. When you walk into a restuarant and the owner says, "Good evening, Mr. Jones. Would you like your ususal table," how does that make you feel? Compare that greeting to the usual cold greeting by a hostess who is finishing her cell phone call as she says to you, "Smoking or non-smoking?"

When you KNOW your customers, you can call them just to have a pleasant conversation, to ask how his daughter did in her recent softball game, or how her son enjoyed his lastest trip. This is an easy and no-cost way of keeping your business in front of your customer. Compare the cost of that phone call to an ad in the newspaper or on the radio.

I can hear the objections now. But I am a financial planner with 2,500 clients. I can't call 2,500 people. Maybe not, but you can call some, send personal hand-written notes to some, and send a monthly newsletter to the remainer of your clients. You can decide who gets called. Maybe you call the top 20%, write notes to the next 20%, and send newsletters to the rest. Have you ever heard that old saying, "Out of sight, out of mind?" The less our customers hear from us, talk to us or see us, the more chance there is of them forgetting us. If they forget us, they won't buy from us.

In Joe Girard's book, "How to Sell Anything to Anybody," he talks about sending a greeting card to every customer every month. If you have too many clients or feel that you are too busy, there are companies that can provide the service for you.

RULE ONE OF CUSTOMER RETENTION: Know who your customers are and keep in frequent contact with them.

In the next posting we will discuss more methods of customer retention. Please remember, we welcome comments and suggestions for future topics.

Who Are The Experts?

So your business is slow. Your sales just aren't increasing the way you think they should. You decide you need a fancy promotion to attract new customers. But you have a problem. You can't come up with any ideas that seem to work. What should you do?

You decide you need to get an "expert" to help. Who should you call? Should you call the experienced, high-priced consultant who advertises that he can provide the help you need? What about the college professor that has written all of those books? Surely she has some great ideas. Maybe you should ask the young MBA for help. He seems to know about the latest trends in business.

Well, in my opinion, the correct answer is ......NONE OF THE ABOVE. You should talk to your current customers, your past customers and potential customers. If you don't know their names and how to contact them, then shame on you. I don't care if you sell ice cream from an ice cream truck. You should have found a way to learn your customers' names and have their contact information. It could have been as easy as having them fill out a form to win a free ice cream cone. The point is .... talking to your customers -current, past and potenial - is critical, so you need to know who they are and how to contact them.

Why talk to them? The answer is simple. Current customers and past customers already know your business. They can answer two of the three most critical questions - Why do they buy from you, and why did they stop buying from you? Potential customers may not know your business but they can answer the third critical question - Why don't they buy from you?

Is it that simple? YES !!!!!! Why hire someone else to ask questions that you can ask yourself? When you talk to your customers yourself, you not only hear their words, you also hear their emotion. Do they sound happy to buy from you because your product or service helps them solve a problem? Do they sound disinterested because they are buying from you today only because you happen to have the lowest price? Do they sound happy to buy from you because your and your staff make them feel important? Do they sound non-committal because they buy from you because they just happen to pass your store on their way home from work? Listen to both what they say and how they say it.

Once you know why current customers buy from you, you can then build on that strength. You can find out what will make them buy more from you - either more of the same product or more products.

Learning why past customers stopped buying from you is a bit more difficult. Some will not want to tell you the truth. For example, few customers will admit that they can't afford your products. If you run an upper-end spa, a customer may give a false reason rather than admit she can no longer afford your services. That is why it is extremely important for you to talk to them yourself instead of hiring someone else or simply sending out a survey.

It is important to find out why a potential customer is not buying from you. Is it because they have a false impression of your product or service? Do they think you are too expensive when your prices are very reasonable? Are they familiar with the inventory you stock or the variety of products you sell? You will never know unless you ask.

When you develop a plan to attract new customers without talking to current, past and potential cutomers first, you aren't really developing a plan - YOU ARE GUESSING !!!!

In addition, by "interviewing" your customers, you are taking the first step in a very important process - customer retention. Customer retention programs are very important to the growth and financial health of your business. Businesses seem to always focus on findng new customers rather than increasing sales to existing customers. That will be the subject of our next posting. Please feel free to post your comments or request topics for a future posting.

Hello Business Owners

Welcome to all business owners who are interested in learning more about the best ways to run a business and to exchange ideas with other business owners. I also welcome those of you who are considering starting a business or who are in the process of getting it up and running.

This blog will contain articles by many different experienced business owners and by people who are considered experts in their field. Having been in the business world for 37 years, I have a rather large network of experienced and successful entrepreneurs who are eager to help others. There will be articles on a variety of business subjects such as market share, hiring potential employees, identifying the best customers, outsourcing, business insurance, accounting software, etc.

I am hoping that the articles that appear in this blog will be helpful. Some articles may not give you new ideas or solve your problems, but rather reinforce your existing thoughts, plans or policies. Perhaps rather than directly providing a new idea, the articles may trigger other thoughts which may be helpful.

To those of you who are experienced business owners, please do not toss aside this blog after reading only a few postings. Remember it only takes one new idea, overcoming one challenge, taking advantage of one opportunity, etc. to take your business to the next level. I have read and continue to read many business publications. Much of the content of these publications is material that I have read many times before. Nevertheless, I always find someting in each publication that I find useful.

Your comments and suggestions are always welcome. If there are subjects of particular interest, please send them to me and I will be happy to find someone in my network who can discuss the subject. If you have had success with a particular promotion, policy, procedure or anything else that you would like to share, please send it as well. And of course if you disagree with anything that you see written here, don't hesitate to express your opinion. Open and honest discussion will make us all better business people.

I plan to begin with specific subjects tomorrow, May 8. I look forward to writing and to hearing from you. You can email me at ron@sentrabusinesssolutions.com.