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When The Cat Is Away The Mice Will Go Play

There is a holy grail of business pursued by many who don’t love what they do and that is the idea of a business that runs without you.

Arguably, a good business, a strong business, should run without the owner to a certain extent.

It’s possible to achieve this feat in even small businesses if you have well trained staff, strong systems and can easily keep an eye on details.

This is almost never truly hands off in the absolute abdication sense but can certainly become low maintenance requiring no more than  one to four hours per week to maintain.

Ironically, there’s a bit of a sweet spot it seems in most businesses where this can be achieved beyond which more energy is required and below which more energy is required.  However, what you’ll learn is it is never so straight forward on a sustainable basis.

Energy input is required for growth, you can either put it in yourself or you can have someone else put it in, but one way or another it is required and if it’s to be to your benefit you’d better provide at least enough energy to direct it.

This brings up a very important principle, not so much a rule because it isn’t always true, but it’s a generally wise assumption.

People will tend to act in their self-interest.  People also tend to fall into routine.  What does this mean for you?

If you ignore your business one of two things will tend to occur, perhaps not immediately, perhaps not universally, but in general it will take place.  Either people will get lazy doing what they can get by doing as opposed to pushing the boundaries to do better, or they will take advantage of what is given to them to benefit themselves.  Three real examples from businesses I’ve owned:

  1. Staff were given a list of duties to complete daily and standards to live up to, certain amounts of work they were expected to get done by the end of each shift, however, in the absence of an on-site manager staying on top of what was done and what wasn’t done they started to slip, they’d leave something for the next shift, they would fail to get it all done, they’d let the standards of how well they were doing one thing or another slip, all of which cost us money

 

  1. Staff would clock themselves in for additional hours, not that they were lying about being present but the company really didn’t need them if everyone was doing their job efficiently,the business had no policy to pay them for those hours, they weren’t authorized to come in during those hours and it would cost the company money for them to be there for extra non-revenue generating hours

 

  1. Some staff would steal clients for their own private work outside the company taking them for on the side services competitive with what the business was offering saying “the prices will be lower”

These are startling examples from just one company of the kinds of things that occur when you’ve got absentee management, when there isn’t someone actively in place watching the numbers, the staff, the performance constantly.  It’s sometimes under appreciated by small business owners just how much difference being on top of the details constantly can make in a business.  In the case of extra staff hours I audited the time sheets and discovered inefficiencies due in part to staff spending extra time beyond what they should be and partially due to inefficient scheduling was adding an additional 20% to payroll costs, all of which would be pure profit with the right management.  In the case of staff who slacked off the estimate was somewhere around an additional 5-10% boost in revenue if the staff were only diligent.  These are small examples but they are also short term examples, factors such as these erode and grow building momentum until they eat a company, a $10 000 monthly profit can quickly turn into a loss if not carefully monitored.

There’s an expression that “people respect what you inspect”.  It doesn’t necessarily have to be you doing the inspection but there is an enormous cost to not remaining on top of the numbers and the people, not constantly optimizing and tweaking.  When you are absent people behave differently, they think and feel differently, they start talking in ways you probably won’t like.

Bottom line, for any business to succeed at a high level it needs effective management, whether you or someone else make sure there’s a manager in place who takes ownership, has the will and the skill to make the organization thrive.

If you’ve got business management or growth or any other questions we’d love to hear from you.  Contact us with your questions.

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What is Credit?

Credit is used every day often without us even knowing it.  If you’ve got a tab at the bar they have essentially provided you with credit even though it’s very short term credit.  There’s an illusion that only banks can create credit and some conspiracy theorists who decry the unfairness of this system.  Nothing could be further from the truth.

Credit is incredibly important and in other articles we’ll examine how it works to create cycles within the economy.  The question is what is it?

To be clear, we’re not referring to credit scores here.  What we’re referring to is a means of payment.  You pay with either cash or credit, again not referring to credit cards in this case.  So what is it?

In any transaction there is an exchange a good or service for cash or credit.  Let’s consider what happens in a cash transaction (not referring to physical bills here but where there is no debt created).  In a case such as this I pay you money and you give me a good or service.  Look at our balance sheets.  At the start I’ve got an asset and you’ve got cash.  Then when the transaction goes through we swap.

Before the Transaction

 

Me You
Cash Goods

After the Transaction

Me You
Goods Cash

Now let’s see what happens if we change this process and instead of paying with cash.

Before the Transaction

Me You
Assets Liabilities Assets Liabilities
None None Goods None

After the Transaction

Me You
Assets Liabilities Assets Liabilities
Goods Debt (payable) Debt (receivable) None

 

Notice what happened here.  Instead of paying cash debt was created.  What is debt?  Debt is an asset for the person who is going to collect the debt and a liability for the person who has to pay the debt.

In other words, credit is when we create out of thin air an asset on one person’s balance sheet with a corresponding exactly equal liability on the other person’s balance sheet.  When the debt is paid off you’ll go back to the way it was in the cash transaction with just cash on the balance sheet of the person who was paid and no liability on the balance sheet of the person who paid.  What’s important about this?  A lot of people confuse credit for money because it can be used as such but credit, which can be issued to an unlimited extent within the confines of physical resources is not really the same as creating money.  It is treated as money in many cases to exchange goods and services but the difference is there is no net growth in wealth because credit cancels itself out.  What it does is it allows transactions to take place sooner, which can help to increase productivity and activate resources in the economy that would normally just be sitting.

Hopefully that gives you a basic understanding of what credit is and how it works.  There’s a lot more to it of course but we’ll cover those nuances in future posts.

If you’re interested in a deeper understanding of credit or any other business or wealth building issue please contact us and we’d be happy to assist you.