In addition to numerous bug fixes, we’ve added some new features we think you’ll like. Now, you can set your preferred price level and category, so when you open the program it defaults to your section and level automatically. We’ve also added a new “Check for Updates” option, that will automatically check our server for new updates whenever you start the program. If a new update is found, you’ll be redirect to download it. (PC users note: These new features are being added into the PC version and a new update is forthcoming).

If you are a Mac only shop and haven’t yet purchased Crouser’s Digital Pricing 2012, you can do so now and use the registration key to register the product on your Mac. You can purchase a yearly subscription here:

• Purchase 2012 Digital for $215.00
• Purchase 2012 Offset for $215.00
• SAVE $80 – Purchase Offset and Digital for $350.00

Our liberal license policy allows you to run the software on any computer in your shop. So, whether you have Windows based PCs or Macs in your shop, you can run our software products on either platform, mix and match – all for no additional cost!

You pick the platform, we’ll provide the pricing.

Just because you made a profit doesn’t mean you created that much cash. Many of us find that out at tax time. Now some know why this is, but many don’t. So disregard if you know. However, if you’ve wondered about it, then let me share a few “whys” with you.

If we buy something for $100 and sell it for $400, we have $300 in gross income. Take away $100 for wages and $100 for overhead like rent and utilities; then we are left with $100 of net income (commonly called profit).

Now why isn’t the $100 net income the same as $100 in cash in the bank?

Depreciation is the most common difference. Ignore Section 179, bonus deprecation and the IRS mandated MACRS (Modified Accelerated Cost Recovery System) for a moment and consider the transaction in pure form.

Buy $10,000 of equipment with cash in year one. The cash is deducted from our bank but we’re required to depreciate (recapture the cost of an asset having a useful life for longer than a year) over a number of years, for example five.

In year one, out goes $10,000 and we deduct $2,000 depreciation ($10,000 / 5 years), so our cash is $8.000 LESS than net income. Year two, however, we take a $2,000 depreciation expense but no cash goes out, so cash is $2,000 MORE than net income. Same is true in years three through five. After five years, we deducted the full $10,000 in depreciation so there is no more difference in cash and net income from this transaction.

Couple things complicate this example. Section 179 allows us to deduct up to 100% of the entire purchase in year one. If we pay cash, then the two offset each other. No harm, no foul. However, most of us BORROW the $10,000 and the reverse happens.

We get $10,000 from the bank and pay the supplier. To keep the transaction simple, ignore interest and assume it will be paid over 5 years or $2,000 per year. So year one’s cash is MORE than our net income by $8,000 ($10,000 depreciation deduction minus $2,000 paid to the bank).

In years two through five, our cash is flipped. We pay our $2,000 each year but it is NOT offset by depreciation (all taken in first year), so cash is $2,000 LESS than income in years two through five. MACRS then adds more math into the calculation, which I ignored to keep it simple. Your professional accountant can help you with this if needed.

In short, decisions on depreciation are the biggest reason net income doesn’t match net income, but there are more reasons as well.

Accounts Receivable: begin the year with $100,000 in receivables (cash customers owe you) and if sales go UP; then you may end with $125,000 in receivables. That additional $25,000 comes from your cash account. So, increasing sales often means you’re short of cash even though net income looks good.

The flip is true as well. Decreasing sales often means collecting older receivables without replacing them, so receivables often go down (i.e. $100,000 to $75,000). The difference of $25,000 is added into your cash account again making cash different than net income.

Accounts Payable is a trickier but acts the opposite. Payables are the amounts we borrow from vendors. An increase in payables thus adds to our cash as a decrease uses cash.

So, receivables and payables are the next two reasons why cash differs from net income.

Inventory: similar story here. The only time you get your money out of inventory is when you decrease it. Start with $5,000 in inventory and end with $10,000 means $5,000 has been sucked out of cash forcing net income and cash to differ.

Withdrawals: Additional money withdrawn (distribution, dividend etc.) by you from your business (not to be confused with salary) does not affect net income. So you can earn $5,000 and withdraw $10,000 and you will still owe taxes on $5,000 even if the cash isn’t there.

Confused? I highly recommend having your professional accountant prepare a Statement of Cash Flows. That will tell you absolutely, positively where the cash went. In the meantime, net income does not equal your cash increase and these are a few of the reasons. And that’s why it takes more than looking at that one number to see the health of your business.

*****
Yes, I will provide a financial analysis and cash-flow budget for your business for $695.Go to http://crouser.com/shop/cash-flow-budget/ for more info. And receive my weekly newsletter and participate in our surveys. Go to http://crouser.com/panel/ and sign up. Message me at tom@crouser.com and follow all of my tweets at www.twitter.com/tomcrouser. I am Senior Contributing Editor of this magazine and principal of Crouser & Associates, Inc., 4710 Chimney Drive, Charleston, WV 25302, www.crouser.com or call (304) 965-7100.

What is the job of a business owner? In this fourth and final edition I add performance to the tasks listed in our previous three issues.

Management types who work for someone always have to perform and they have to report to someone in order to keep their job. A branch manager or a store manager reports to a division director or vice president somewhere. A vice president reports to a president or CEO. Presidents or CEO’s then report to a board of directors representing stockholders. Even the board reports to the stockholders. And each and everyone can be thrown out on their ear if they don’t perform – even if it’s not their fault. So, they have one thing in common – perform or else.

Only in these businesses that we create can we avoid the issue of not performing. Many of us put ourselves in a situation where we are in total power, everyone reports to us and we report to no one. Under those circumstances we can demand of others and not perform ourselves. But the original question is what should an owner be doing? So, let’s consider what a real board of directors would require of a print shop owner if the owner were reporting to the board.

You would be expected to have good profitability where you are today. You could no longer kid yourself that you are building for the future in some mysterious way that no one else in the family understands.

In addition, your performance in sales would not be measured against what you did last year. Rather, your sales performance would be measured against how big the market is where you are and what percentage of the market you owned. And regardless of what percentage of the market you owned, you would be expected to increase it. And, while doing all of this, you would be expected to maintain a good current ratio and days’ cash on hand to protect the business. And, if you didn’t, you would be fired and someone else would be running the business. Sounds like fun, doesn’t it?

Urgency: a real board of directors would put a sense of urgency into the organization by starting with the person running the business – you. Don’t perform now and you don’t get to run the business. This sense of urgency tends to permeate the organization. Corporate America is often rightly faulted for looking only at short-term performance. Although that is a valid criticism, could you image if corporate America operated as we in small business do? We never get there. We never have the profits we need, we never have the current ratio, and we never have the sales. It’s always next year after the next piece of equipment or after we get one more customer.

People and Discipline: a real board of directors would demand far more from the people that we have hired to help us than we do. And we would be the person in charge of enforcing the organizational discipline. (Discipline as we define it is doing what’s most important not what’s most fun. Organizational discipline is defined as making sure everyone else does it too.) “I can’t ask Jimmy to get here when everyone else does because he got his license taken away for too many DUI’s.”

“Janie can’t do the job that I hired her to do, she’s dumb. So, there’s nothing I can do.” We would be required to organize around functions, not people. You need a CSR from 8:30 to 5 p.m. It would no longer be acceptable to hire someone who couldn’t add, think or spell and then let them go home at 2 because they (fill in the blank).” If that happened, you would be fired along with them.

Make and Meet All Budgets: a real board of directors would expect us to plan and then make it happen by using an operating budget. A real board of directors would hold us to a standard of predictability – good or bad. We would be able to predict our sales because we would be very close to our customers. We would have contingency plans based on the probabilities of our customer’s plans. Lacking this, we would be expected to be conservative with our plans – budget on known sales not anticipated sales and make money at that level. Then, if we increased our sales above that level, we would be expected to increase our net income above that level also. Please note, in the companies we follow on a monthly basis – and there’s lots of them – often sales go up yet profits go down. That would not make a real board of directors happy.

Capital Budgets: a real board of directors would require us to also have a capital or strategic budget. This one would be based in knowing our customers, which we can’t do if we haven’t been in their office in the last four months. It would identify capital opportunities (that new press) and compare and contrast with all the other capital opportunities we have including leaving the money in the bank. It would require we set milestones as we cautiously proceed (get a certain number of contracts before we buy the equipment). A board would also measure our performance against this plan and not allow it to proceed if our milestone hurdles were not made.

Report and Communicate: you think when your spouse broadsides you with a business question that it is difficult now? Wait until you sit in front of a real board. A real board would demand you fully report variances to the plans (budgets) without excuses – and along with the actions you plan to correct the variance. Real boards don’t like surprises – good or bad. They want you to be focused, to know exactly what you are going to do and what the results will be – and then they want you to do it.

So, this whole concept of running a real business based on real business principles is no picnic. It is extremely important and, if an owner wants to run their business “like” a real business – then these are just some of the performance issues to consider.

What’s an Owner’s Job?

Now let’s answer the question. The owner doesn’t have a job – they are stakeholders. There is a job for the person who is running the business however.

Stakeholders have a right to a return on investment and they do have an obligation to be supportive, but they have no job or a right to a job. Companies are like cars. One can own a car, but to get use out of the car, someone has to drive it. Likewise, someone – usually a stakeholder and commonly a founder – steps up to the responsibility of General Manager (CEO, president or whatever) and drives the business. Now that’s a job.

That job is to make and meet all budgets, which begins with making one. Making a budget not only includes making an operating budget consisting of sales and the anticipated expenses of direct materials, wages and overhead. But it also includes a capital budget with plans for the amount that will be taken out of the business, the amount needed to protect working capital, the cash for educating the kids and retirement and how much to spend on new equipment.

The flip side is the General Manager has to meet all budgets. Doing this we have to get jobs out, get jobs in and get paid – or operations (production), sales and finance. And if anything is off budget is happening – meaning a variance from the plan – then the General Manager has to be courageous enough to fix it if it’s bad – and witty enough to enjoy it if it’s good.

Additionally, the General Manager is responsible to communicate the progress of the business with the stakeholders of the business – before they ask.

The General Manager, however, isn’t a full time job and must take responsibility for one of the other two prime functions – production or sales. They can do finance, but not as a primary responsibility for finance is clerical in nature. We need a person involved in the business to run the business. So, the General Manager of a business will also spend most of their time with their secondary job – production or sales.

The General Manager is also responsible for discipline and oversight. Discipline is doing what is most important, not what’s most fun. Oversight is seeing that everyone else is also doing what’s most important, not what’s most fun.

The General Manager is the person who is primarily responsible for recruiting and retaining workers. We put this at the General Manager’s doorstep since this is the person who most frequently runs workers off.

The General Manager plans and oversees the company’s sales and marketing efforts, even if they are in the additional role of production manager.

Specifically the general manager maintains a personal relationship with the company’s top 25 accounts that usually provide 50% to 75% of total sales. So, no salesperson can take the place of the general manager with these accounts. Salespeople can assist the general manager, however, but not replace them.

The general manager’s role in price is that of chief negotiator for the business. The general manager’s role in finance is to oversee – decide what bills to pay perhaps, but not to write the checks.

And the general manager’s job also is to see that the business performs.

So what’s the print shop owner’s job? To step up to the leadership role as General Manager. And the General Manager’s job is to make and meet all budgets. It’s about as simple as that. Hope that answers the question. Whew. Sorry for the long answer but it’s a complicated question.

Tom Crouser

In the last two installments we said that ownership is a passive verb. An owner has a right to a return on investment in both time and money. We found owning a business was much like owning a car – that it is limited in usefulness until someone drives the car. And we found that ownership is broader than the founder – that it extends to the entire business family who are stakeholders in these businesses regardless of whether they are stockholders. Most people confuse the title of owner with the function of the one person who runs the business – the function of General Manager. And, the job of the General Manager is to make and meet all budgets, report to stakeholders on the progress of the business and to maintain organization discipline and oversight. We also find that this function is only a part-time function in most of our shops. But, this isn’t the complete story. There are other roles held by the General Manager like recruiting and retaining workers; selling; negotiating price; and finance. Let’s review them to help round out our picture of the function of the General Manager.

Role in Recruiting and Retention of Workers

At the highest level of the business is the requirement to recruit and retain workers. I put this at the top simply because it is usually the owner who chases off good workers and creating the need to recruit in the first place.

An owner in the Midwest obtained sales training for his CSR’s and then asked one of them to do part-time outside sales which she was eager to do. To cover the CSR’s absence, the owner had the bookkeeper, who was untrained in CSR things, to fill in.

The bookkeeper did some light stuff like answering the telephone, but stacked up all the heavy lifting (estimates, orders, etc.) until the CSR returned. The CSR found herself not only doing outside sales, but doing her original job as well but in less time.

It didn’t take long for the CSR to find reasons not to go out which didn’t make the general manager happy, so he puts pressure on her to get out the door. The CSR felt like the old saying, “no good deed goes unpunished,” interviewed for another job where they “really wanted me,” and quit.

There are a lot of ways that owners run workers off. Most aren’t because the owner cusses, yells and screams although I see that. Mostly it’s subtle but sometimes not.

Sometimes owners allow one person to repeat bad behavior to the detriment of others. I know of one who put up with a worker smoking pot in the delivery van. He didn’t do anything about it but expected everyone else to follow the rules. They didn’t. Imagine that.

Sometimes we don’t talk to a worker for six weeks because they actually took off some well-earned vacation days. Sometimes we hire a new worker and then expecting them to learn through osmosis – and then coping an attitude when they make a mistake.

There are so many examples but it is best summed up with this one: employee left a $15 an hour job for one paying $10 an hour. Owner questioned him and he said, “It’s just that $15 isn’t enough to put up with you.”

So, retention of workers is right up there with the recruitment of workers. As for recruiting workers, I’ll be publishing more on that soon. Just understand that recruiting workers is a campaign and you have to spend real time on it. You just don’t put out an online ad and expect the perfect person to walk in the door.

The General Manager’s Role in Sales

The general manager plans and oversees the company’s sales and marketing. This also is at the highest level of the organization since, as we have mentioned before, the businesses’ business is to find and keep customers (Al Rises in “Focus”). But let’s get specific.

Specifically we add to the general manager’s duties the requirement to maintain a personal relationship with the company’s top 25 accounts. These are the accounts of the general manager and, as you have heard me say many times, the top 25 accounts provide usually 50% to 75% of the total sales.

Do I mean the general manager has to write up the orders, etc.? No. What I mean is all accounts, especially the top 25, are the accounts of the general manager. The general manager may assign others to assist them such as a salesperson to regularly call on the account and write up orders. But make no mistake. Regardless of who writes the jobs up, regardless of whether you have outside salespeople, and regardless of how you don’t like to deal with customers – maintaining these relationships is what keeps your shop’s customers yours and not the salesperson’s. Failure to do this is the reason printing companies usually face a life and death sales crisis. Someone took the accounts and that someone was the salesperson working for you.

Further, it is the responsibility of the general manager to assure that the business is actively seeking customers. Al Ries in his book, “Focus,” says the business of the business is to acquire and keep customers.

The fact remains thought that most companies, even with outside sales people, have no regular process that targets and seeks business from new accounts. Stephen Covey in his classic “7 Habits for Highly Effective People” uses the historic example of farming. We must plant in the spring to reap in the fall. The business that fails to prospect continually can expect no better results than the farmer who waits until fall to plant the corn.

And this is not just sending out a direct mail piece to the same tired list as we have done for years or setting up a web site. Remarkably, many don’t even do that.

Somewhere we must identify all the prospects that we have in our target market. From that we select those most likely to need our services. Then we follow up with an organized approach to penetrating the account. That includes finding out specifically who buys what it is we sell, which includes getting to see them. That includes us knowing what to do and say when we get in the door. There’s more, but imagine, some general managers think all they have to do is to hire a salesperson and the salesperson will somehow figure it out.

The General Manager’s Role in Price

The general manager is chief negotiator of the business. Unfortunately, many owners are poor negotiators and end up selling on price. That forces us to keep wages and benefits low putting us in a very difficult position. We can’t afford to pay our workers more and we can’t afford to recruit new ones when the ones we have leave because they can earn more elsewhere.

General Managers, who know how to negotiate, get better prices, pay better wages, have less stress and make more money than those who don’t. Those who don’t know how to negotiate; they focus on price and complain to each other about the “guy down the street.” Nevertheless, the role of the general manager in price is to be the chief negotiator. And not knowing negotiation is what helps keep poor printers poor.

The General Manager’s Role in Finance

Every company must have a finance officer. This person’s job is cash management. Generally, they get in the checks, post them to the receivables, organize the bills and write checks. Too many times, general managers see this as their only role. You can no better run a business from the position of finance officer than a supply sergeant can successfully run a battalion. “Take that hill, men – but be sure to bring me back your ammunition usage forms in triplicate. And if you don’t, I’ll shoot you!”

This kind of organization is known in most circles as something akin to chicken manure. “I go out and fight the enemy (CSR helping customers on the front counter) and yet my leader is in the rear echelon (plush office) creating another form for me to fill out. I’d just wish for once he (or she) would just come out here and see what I’m doing and help me with tools that will give us an advantage in the battle.”

Too many times we see the general manager performing the function of a bookkeeper. Bookkeepers are vital to our business, but it’s not a line function. There is a reason that the chief of staff at the hospital is a doctor – not an administrator. There is a reason that the commander of a flying unit is a flyer – not a supply officer. There is a reason that the person running the business needs to be involved with the real business of the business. The reason is leadership. The reason is morale. The reason is you can’t drive a car by sitting in the passenger seat studying a map.

The general manager, however, has an important role in finance. After all, if the return on investment in money isn’t there – then we kill the general manager. So, the general manager in most small shops directs the work of the finance officer. The general manager reviews the aging report of receivables and directs the collection effort. However, it is the general manager who personally steps in on the tough cases and makes the final collection calls themselves.

The general manager directs the bills to be paid, but doesn’t write the check. The general manager generally signs the check in order to maintain security as well as to know what is really going on. Frequently one spouse will be the part-time finance officer and the other the general manager. Even in these cases we want the general manager to sign the checks, not because of security as much as maintaining contact with what is happening to the cash in the business. Surprising how we don’t spend as much when we actually sign the checks. This step alone has brought many general managers back into touch with reality. So, the general manager’s role in finance is to supervise cash management and make sure we meet all budgets. It’s not to do the work.

In this installment, we have examined the general manager role in recruiting and retaining workers; sales; price; and finance. Next, in our fourth and final installment, I will wrap it up in a big package. By the way, I told you it was a long and difficult answer to a short question.

The question is, “What’s the job of the person running the business?” In our last installment, we focused on the primary duty – to make and meet all budgets. In addition, we said they also are responsible for reporting on their progress of meeting the budgets to the stakeholders. Okay, you may ask, but how does that relate to print shop tasks such as writing up jobs, waiting on customers and ordering supplies? Well, it doesn’t because that’s not the job of the general manager. Huh?

We must organize around functions – not people. In our size shops, the job of the general manager is not a full time job – even after you read all the things I am going to list. Rather, the job is a part-time effort even at the two and three million dollar level. So, the general manager also accepts other additional duties and that is where the details of writing up jobs and waiting on customers are considered.

The General Manager’s Other Job

Each and every day we need to get jobs out (production), get jobs in (sales) and get paid (finance). Each of these is a separate and distinct function. The general manager’s job is not to specifically do these tasks, but assure that they are done. Now, the general manager also MUST fill an additional role of their choosing at the next level of organization – but it can’t be finance.

Why MUST the general manager fulfill an additional role? There isn’t enough real work for a person to do all day as general manager.

Why can’t the additional duty be finance? The tasks of finance in our businesses are the tasks of a bookkeeper. Bookkeeping is vital, but it is not a line function. There is a reason that the chief of staff at the hospital is a doctor – not an administrator. There is a reason that the commander of a flying unit is a flyer – not a supply officer. There is a reason that the person running the business needs to be involved with the real business of the business. The reason is leadership. The reason is morale. The reason is you can’t drive a car by sitting in the passenger seat reading a map.

Someone is saying, “Yes, but the CEO of General Motors doesn’t know how to build cars!” Pish-posh. The CEO of General Motors knows a LOT about building cars. Anyway, we’re not General Motors. They have the financial strength but we don’t. If you have put yourself in the position of being Ray of Ray’s Plumbing then you’d better know about plumbing otherwise you will be forever hostage to skilled workers. But, again, that’s another article. So, the general manager should oversee and know about finance, but not run the business from the position of bookkeeper.

The general manager’s other role must be at the next level of organization – production manager or sales manager. The general manager can’t report to someone who is reporting to them.

I have seen general managers try to operate their business from the position of salesperson. The general manager (and owner) told us that he was continually peeved at his old boss for not providing him the time and price that he needed to be competitive – so he started his own shop. Now he just promises whatever time and whatever price the customer wants and demands his print shop meet the commitment.

Organizationally, he was general manager and he had a production manager. He even had a sales manager to manage him! So, in his job as salesperson, he reported to the sales manager who reported back to him as general manager. Sound like a circle? It was. It’s also a way for this person to avoid the real responsibilities of running a business. Instead, this owner sold without impediments – promised whatever time and a whenever delivery. Did it work? Nope. He wasn’t making any money this way and couldn’t figure out why.

This is not to say that a general manager should not be involved in sales. We highly recommend it. In many instances we have the part-time general manager also taking on the part-time role as sales manager and the mostly full-time role of salesperson. You just can’t have circular reporting relationships where the sales manager reports to the general manager and the general manager acting as salesperson reports to the sales manager.

Another popular hiding place for owners is the function of estimator. Most use the “force” method. You know – “Let the force be with you.” Some people ascribe something magical to estimating – like it’s the Holy Grail of printing. It’s not. Estimating is nothing more than applying a price. Granted, some calculations are harder than others because of job complexities (a booklet as opposed to a flat sheet). But it’s still applying a price, which is trainable.

Estimating is a function of production management. Production management is essentially being asked how much it will cost to produce a job (please estimate how much it will cost, etc.). It is the selling function that should put the actual price or market value on the estimate. Since this is not practical to vary this from job to job in most cases, management then devises a price per function – or a price list if you will – based on cost but also taking into consideration market values. Most of what we call estimating is not estimating; rather it’s applying the price to the job.

Now many poor printers get wrapped up in this “estimating” role. They spend hours and hours estimating – ciphering if you will. And always the price they end up with is less than the price list that was previously established. After all, we need to have a lower price in order to get the job. So, we compensate by cutting back on the other end of the equation – the amount of time estimated to complete the job. And, if it actually takes more time than estimated – well, we’re back to the spoiled salesperson position only that this time we are talking estimator. This is particularly difficult when the general manager-estimator knows little about performing the real job being estimated. We usually compensate or augment in these cases by focusing on negotiation training, but again this is another article.

Now, again this doesn’t mean the general manager can’t estimate. Important is you must prevent circular reporting or the estimator (you) reporting to the production manager who reports to the general manager (you). It is permissible for the part time general manager to be production manager (full time) and a part-time estimator, of course.

So, the general manager of the business must be involved with the real work of the business at the highest level and that is either production or sales – you may choose one or the other, but not both. Why not both? Our purpose in “getting organized” is to separate tasks into separate jobs. If we are general manager, finance officer, production manager and sales manager, then we are not organized; we’re just doing everything ourselves.

Now let us add the duties of discipline and oversight to this list of functions of the general manager.

Discipline and Oversight

Discipline – the way I use it – is defined as doing what is most important not what is most fun. This begins with the self-discipline of the general manager. From there the general manager is responsible for the organization’s discipline – assuring everyone else also does what is most important not what’s most fun.

If we had a real corporate job, there would be parts of it that we didn’t like. For some people it’s accounting and the details of understanding where they are. For others it’s selling or dealing with people – one family told us that pop was okay as long as we kept him from three kinds of people: workers; customers; and vendors.

If we are going to drive the car then we are responsible for getting jobs out, getting jobs in and getting paid PLUS everything that those tasks entail. Sure, we are better at some tasks than others and sure we like to do some but not others. But our business is not simply a refuge for adults who don’t want to do what they don’t want to do. Severe damage is done to our business and family when this attitude is taken.

Yes, we can hire others to assist us with these tasks – even ones we don’t like. But that does not relieve the responsibility of the general manager to assure these tasks are done and participate in their completion. As Michael Gerber said in his book, “The E Myth Revisited,” delegation is not abdication. So we are responsible to assure that we – along with everyone else – gets jobs out, gets jobs in and gets paid each and every day we drive the car.

Where does this breakdown? A father hires a son who previously was a salesperson for a large corporation to be a salesperson in the printing company. The son, after doing the job for three weeks, announces that he doesn’t want to do that anymore – he doesn’t like it – rather he would like to be the graphic designer. As you can guess, the son then goes about doing graphic design work and the sales function goes vacant. That’s organizing around people, not functions.

In another case, a spouse chooses the role of salesperson but doesn’t make sales calls. In another, a spouse chooses the role of financial officer but lacks the details of getting the financials prepared. A son is a salesman but doesn’t do the job because their jobs aren’t getting out of the shop. Result, the son stays inside to shepherd his jobs through while others do the same. This is all because the person who is supposed to do production management doesn’t do it.

It is even MORE common to see the person who is supposed to be driving the car actually playing with their computer in the trunk – or contemplating the navels of other printers online.

One general manager told us they do a lot of quotes because no one else is trained to do them. They check on the status of “their” jobs because there is no production manager doing it. They talk on the telephone with customers a lot because deadlines aren’t met. Of course, we have to do a lot of reading about the state of the industry and participate in trade associations – neither of which is bad unless it is at the expense of the final invoicing not being done for two months during a period where sales are down 25%. He had hired a CSR to help out but she had been there three months and had received no training – and complained that she couldn’t find enough things to do to keep busy.

Much of this is due to the lack of discipline on the part of the general manager and the failure to organize around functions. The job of the general manager is to make and meet all budgets – and to maintain the organizational discipline. Or, in short, to do what is most important not what is most fun and make sure everyone else does it as well.

That means the production manager makes and meets customer commitments, the sales manager creates demand for existing capacity and the finance manager manages cash.

Let’s review. What’s the general manager’s job? To make and meet all budgets, report to stakeholders on the progress of the business, and to maintain organizational discipline and oversight. Additionally, this is a part-time position that must be filled with someone accepting one of the two leadership functions one level down – production or sales management. Next article, I’ll add to this list.

Tom Crouser

So what’s my job as business owner? Makes my head hurt. Wrapped up in one short question is one seriously long answer. So, this is part one of four and my first answer is that there’s NOT a job for an owner. There is for the person running the business, however.

Ownership is a passive verb. If you own stock in General Motors, you have a right to a return on investment and you have a right to expect your management will focus on increasing your shareholder value. In our kinds of businesses it is no different. You may own a car but that does you little good until you take on another role – the role of driver. Same is true with our businesses and the refusal of many business owners to actually drive their car is a root cause of many problems.

Let’s begin by looking at ownership. Do YOU really own YOUR business? Some boys like to departmentalize their life. They say, “This is MY business and I’ll do darned well what I please with it.” Hum. Get a divorce and see how much of it you own.

Some girls in a supportive spouse role also want to departmentalize – I don’t care what he does with his business, I’ve got a career of my own. Hum. Let him buy a five-color press he can’t pay for and let’s see how independent from the business you remain. Even children are involved. Growing up on the family farm is different than growing up in town and we are today’s equivalent of the family farm. When the fences are down and the cows are out, EVERYONE is affected.

Point is that you must start with the premise that we don’t have stockholders in our kinds of businesses – we have stakeholders. And regardless of whose name is on the stock certificates – all will share rights and responsibilities. Therefore the concept that there is one job description for a business owner doesn’t hit the mark because it assumes there is one business owner and there is not – the family owns the business and each member has a slightly different but similar role as stakeholder. Essentially though the job description is similar to any other stockholder – the owners have a right to a return on investment.

Because we are NOT General Motors, however, we define this more precisely. Stakeholders have a right to a return on investment in both TIME and MONEY. The litmus test is the family should have more time together as a family AND more money BECAUSE we are in business, not less. And if this is not happening, then it must be fixed or we should just shut it down and get a real job.

Now to the organizational question – stakeholders select one person to actually drive the car – or run the business. It’s not two, it’s not a committee, and it’s not by consensus. One person has to steer, dodge the potholes and decide when to speed up and when to brake. That’s not to say there will not be disagreements or challenges, especially between spouses working together. It simply means that these disagreements should be stakeholder disagreements and not operational ones.

We can obviously disagree on our destination. We can obviously disagree on whether to drive all night or hit a rest stop. We can even disagree on whether we need a new car or not. In an organized approach, we just keep these disagreements off the shop floor. And, remember, that doesn’t mean the driver has absolute power. Others may see dangers and bring them to the driver’s attention. This process of stakeholder agreements and conflict resolutions is another chapter, so allow me to get on with the question at hand.

What’s the job of the person running the business or driving the car? That’s simple. The job of the general manager (president, CEO or whatever you want to call them) is to “Make and Meet All Budgets.”

In budgeting we decide what our sales and expenses are going to be in the future. We decide how much we will take out of the business and we will decide what we do with the remainder.

I’m sure some are saying how can anyone do that? Well, you can’t for sure. But you can assume your sales are going to be what they have been (assuming no downward trend) and you can assume your direct materials percentage will be the same. Then you can plan your wages and overhead accordingly. Then plan for the amount you will take out of the business, protect your working capital, plan for your educational and retirement funds, and then decide how much you will spend on equipment acquisition.

Okay, so we can’t be 100% positively and absolutely sure. So, we have to deal with probabilities, maintain a strong current ratio and protect ourselves from the downside risk.

A printer in Iowa has 13:1 current ratio, 92 days cash on hand and has been growing on average over 10% per year for the last three years. His income before owner’s compensation was 34% last year or $160,000 on some $480,000 in sales and actually took out about $113,000 for the family.

Problem was: he was working himself to death. So his budget based on his current sales level finds him projecting for less IB4 Owner next year so he can hire someone to help out with his time problem. But even here, he did not plan to spend more than he projected he would make. He is planning to maintain his current level of withdrawal on the same level of sales and end up with basically no net income. He’s planning to spend it.

That’s okay since he has a strong current ratio and – here’s the gamble – the probability is very high that the move will allow the company to actually increase sales during the period and not only pay back the income he is planning to spend but actually gain more. If it doesn’t work, well the downside risk is minimal. Everyone in his Performance Alliance(r) group felt very confident about the budget and his ability to meet it.

Contrast that with the budget of a first time California participant. He has a 0.6:1 current ratio and 4 days cash on hand. He had sales of $1.8 million in 1999 and he’s projecting $2 million this year based on the first three months and has been growing at a rate of 13% per year for three years.

His budget is based on the $2 million of sales, he’s planning on spending about $100,000 more in wages than he spent in 1999 and his overhead is planned to increase $50,000. That means his IB4 Owner of $100,000 last year (5%) is projected to be $100,000 this year. Of that, about $30,000 will be left in the business to correct his working capital deficit, which at this rate will take about ten years to rectify. Perhaps after six months of trying to actually meet this aggressive budget, he might be in a better mood to actually fix his problems by making money where he is. But then again, he may do better. Everyone in his Performance Alliance(r) group felt the budget was very aggressive.

Okay, so the general manager’s first job is to make and meet all budgets. To learn more about the budget process, go to our web site at www.crouser.com and search for the topic “budget” in our search engine. The question raised was what was the job of the general manager? The first part of the answer is to make the budget.

Now, the general manager must also actually meet the budget. If you say sales will grow 20% and you’re spending all of it – then you darned well better meet it.

How do you meet the budget? Three steps generally – I’ve called them the gettin’s. You’ve gotta get jobs out, get jobs in and get paid. And these steps take us deeper into the organization of a print shop. Again, we are focused on the general manager.

So, it’s the general manager’s job to make and meet all budgets. The general manager also has some other duties as well – prime among them is the maintenance of organizational discipline.

The general manager is also responsible to report to the stakeholders about the progress of the business. For most of the boys this means actually talking to the spouse about the issues in the business. And we’re responsible to be pro-active in doing so. It is not a threat to our manhood that the spouse is concerned about finances. Everyone needs to know where the car is going and what road we are going to take. Additionally, we need to add some conflict resolution training here for everyone. And I’d add the old marriage-counseling rule – those issues that aren’t resolved by the stakeholders don’t get done.

If you want to buy a press and the spouse doesn’t agree, then it’s not all right to buy the press anyway. Remember, if we were running a real company then we would have a real board of directors requiring us to perform.

So, THE first answer to our friend’s question is that the general manager’s job is to make and meet all budgets. In addition to this, the general manager is responsible for organizational discipline and oversight as well as reporting progress to the stakeholders. The general manager is also responsible for recruitment and retention of workers and oversees the three functional areas of the business – production sales and finance. You’ll find out more about these duties in our next installment.

You may find your situation stressful and chaotic. You have little money. You have hired folks who don’t perform. Your schedule is set by which customer is on the phone demanding their job. Whatever the cause, you’ve lived like this for some time and there is comfort in chaos.

Yes, comfort.

Dan Ariely in his book, “Predictably Irrational,” says there is a Dr. Jekyll and Mr. Hyde in all of us. Our rational self is Dr. Jekyll and when operating in that mode, we can easily intellectualize that we know we need to do. Now why we don’t do it is that we have to do it in the heat of battle or when we are Mr. Hyde so to speak. Ariely says we often can’t predict what we will do in the heat of battle such as tell a worker they have to do something differently or actually change.

I worked with a client who previously had lost his house by continuing to take the money out of his equity and dumping into the business. He was renting now and still had a key worker who came in at five in the morning and worked until two in the afternoon. This prevented the owner from doing what he needed to do (sell something to someone) because he needed to be in the shop to cover.

He knew this was a problem but did nothing. He called us for help and we, too, identified the worker’s hours, among other things, as a problem. He agreed. Actually he said that the reason for the worker’s hours had changed, so it shouldn’t be a problem. We then made a list of changes with this as the first item and left it with him. Excellent. Job was done, right? Well, not exactly.

During the first follow-up telephone conference, our friend had completed a lot of the items on the list but not the worker’s hours. Okay, let’s do it next week. He didn’t do it then either.

In his rational state, it was easy for him to agree to the change. But he froze in the heat of battle. This is common. That’s when we used the quarterback routine.

Ever notice the list taped to the quarterback’s arm? It usually the first eight or ten plays he’s to run regardless of the situation. That’s because in the heat of battle, we don’t always think quickly or rationally and after so many plays, the quarterback is then calmer and can think more clearly.

So we scripted what he would say. “Joe, I’m going to need you to work from 8 to 5 pm beginning the first of the month. Do you have any questions?” Then we worked on potential responses. Result? He did it.

Why didn’t he do it before? He was fearful of the first few plays in the heat of battle. But there’s more to change. Once we overcome our tendency to leave things the same, we must deal with the team’s tendency to do the same thing.

Mary Beth O’Neil, an author, leadership consultant and executive coach, says that groups often resist change even if they absolutely know it will benefit them.

This “push-back” tendency is the second leading cause of change not taking in our business.

I was helping an owner interview a production manager candidate when I asked him to describe the last time the company implemented a policy he didn’t agree with. He told us the company implemented a job cost system that he didn’t like. So, he talked with the other guys and everyone agreed to not turn in the reports. After a couple weeks, the reports were never asked for again.

We don’t always have such clear examples of organized resistance but the results are the same, organized or not. Boss gets a great idea to change something; tells everyone to do it but then focuses on other things. That’s when the boss complains, “I tell them to do it but they don’t.”

Imagine a jig-saw puzzle. Your team is intertwined like pieces of the puzzle. Some pieces or people are bigger than others meaning some people’s influence on the team (authority) is greater regardless of their position (power). Some pieces have their tentacles connected to many areas outside their own like a cancer, some have few.

Some prepress operators run the shop even though they’re not in charge. They run the shop through expertise (no one else knows to do what they do and gosh forbid they ever quit) and their will (prima donna comes to mind). I’ve seen many press operators cuss and kick the press and become, in fact, the force that has to be dealt with in order to get any job done regardless of who owns the business or who is in charge.

Now imagine an invisible force field putting pressure on each of the four sides of the puzzle, ever pushing inward and keeping it intact and resistant to change. That’s homeostasis or the pressure for equilibrium.

And now you want to change something, huh? Well how do you break through the force field? Anytime we want to make changes you must first anticipate the resistance to the change. It is part of human nature. You can usually figure out responses you will get from workers in advance. You then script and prepare yourself for their reactions during the heat of battle.

Then you must assure the change takes. Decide what changes need to be made, let the team know, and then maintain everyone on a short leash until it sticks. This can be done through reporting or direct supervision or whatever is appropriate but you must be intent on making the change an organizational habit. And you will have to be willing to change workers if you must.

Nonetheless, why do we not change what we clearly know should be changed? Homeostasis, our own Dr. Jekyll and Mr. Hyde behavior as well as the natural push-back we will receive from our team is why. Otherwise, it would be changed wouldn’t it? And that’s exactly why LeBron James needs a coach. Regardless of how good we are, we all need someone else to help us affect change.
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For help in personal changes, check out my 50-minute, 6-part audio program: “Why Don’t We Do What We Know We Should?” It adds to the information in this article. Only $20 at www.crouser.com

For help on what to change in your business, sign up for a no-cost or obligation Business and Market Analysis by CPrint® International. You might learn something about your business besides find things you might change for more income. www.cprint.com

Reader writes: I had no guidance when I started the embroidery operation; rather I inherited machines and used my experience as a printer to guide me. Obviously, the problems I ran into could be overcome especially if they were known beforehand, but I found them to be obstacles to our success. With enough sales and experience we could have succeeded, but we didn’t have that so it was easier to shut it down. Here are the obstacles as I see them:

1) Cost of the direct materials (shirts, clothing, etc.) is significant. In printing, we are shooting for a 25% cost of goods sold (direct materials). In embroidery it is in the 50% range. We would buy shirts for $20 and the order would be for 100 of them. We marked up the shirts 50% and then added for embroidery, about $5 a shirt. That meant the total price was $3,500, but the shirts (direct materials) were $2,000 of that plus some thread and backing which was minimal. So the direct materials are 57% of the job. There are a number of reasons why this is significant.

a) Mistakes: even a mistake on a single shirt was very expensive to fix, as you had to reorder the shirt, and possibly pay shipping on a small order.

b) Franchise Fee: We were doing this as a department of a franchised print shop and did not fully realize the cash ramifications. Our royalty bill on a $3,500 invoice at 7% is $245 which is very significant when compared to the margin after materials ($1,500 embroidery vs. $2,625 printing).

c) Accounts Receivable: in printing, we give customer terms and since some of our existing customers bought, we extended terms here also. Everything was fine until a customer didn’t pay on time. Because of the much higher direct materials that we had to pay for, we had a severe cash crunch financing the receivables. We were selling more but had less cash flow. Additionally, we had a hard time asking a good printing customer for cash up front on embroidery work.

2) Customer’s resistance to shirt prices (direct materials). We would show a customer our catalog and agree on a $20 shirt. Then they would then come in the next day with a dozen shirts that they got on sale for $15 each. We then had a couple of options, none of them ideal. Rarely does a customer bring paper to a print shop, but many bring products to be embroidered. Again, I was faced with trying to get a higher margin, but could not over price the garment relative to what the customer’s perceived value. Most don’t know how much paper costs, but they sure know how much a shirt costs.

3) You end up with a lot of small orders. You start off doing a large order; say 50 shirts for a sales team. You then have to support that customer, so every time they get a new salesman or the president wants a new shirt, you get an order for two shirts. It’s difficult to charge the enough for those two shirts.

All these problems are dealt with in the successful embroidery shop, but we didn’t have the right information, experience or guidance. There are many successful embroidery operations and I should be able to operate one of them. I remember thinking, that with more information, I could have made it work.

Tom’s Comments: our friend gives us some really good things to think about before we expand into embroidery or any other product/service.

First is to calculate whether we have enough cash to make money. Say you sold widgets that cost you $500 for $100,000. And say you had already lined up five sales. That’s $500,000 in sales on a $2,500 investment – heck, who wouldn’t jump at that? What you didn’t know though is customers would pay you $1 a month for 100,000 months. Oopsy. Now there’s a problem. So use a cash-flow budgeting system to figure this out.

Second is to have a good price strategy. Here the printer relied on the markup of shirts to make the profit instead of the embroidery. Instead of selling the shirt for $20 and the embroidery for $5, could the shirt be sold for $15 and the embroidery for $10? Not saying that it could, just saying that one has to price appropriately to avoid price quagmires as the reader described. This would also help with the two shirt order as would perhaps a set-up and run charge as we typically see in printing. Okay, I’m still on the hunt for embroiders, so just reply to this message with an email and I’ll put you on my special list.

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The message above was published on March 6, 2012 in the Crouser Report and I received several messages in response. The responses follow:
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Wisconsin printer writes of his pricing method: There is a set up if a particular typestyle or logo is needed. To embroider words, as long as they can accept one of the standard type styles, there is no set up charge. Costs are based on the number of 1000 stitches. We use a base cost no matter what the customer wants; they will pay $5.65 for up to 7500 stitches and $0.35 for each additional 1000 stitches.

For real large files (over 100,000) or if there is a lot of pieces being done (more than 50) we always discount. The files need to be digitized for embroidery and the standard PC can’t read or recognize a digitized file without the program (another expense I have no need for).
Anytime a logo is involved, there needs to be a digitized file.

There are a lot of companies out there that offer to digitize files for customers. Once they have received a number of jobs from you, the relationship grows and they are willing to make adjustments at no cost to tighten thread patterns or other small fixes to get it just the way the customer wants it to be.

Before decorating any garments for the first time, I have a sample output to bring to the customer for a signed approval. Expensive garments can cost you a lot if YOU decide it looks good enough and your customer doesn’t agree with you.

It is a process at the beginning but when my customers can find everything they need under one roof and you truly take care of them, they have no need to look elsewhere and the repeat business and word of mouth they will share with their vendors and clients that work with them, just continues to snowball your business.

I don’t allow the customer to bring me clothing that they have bought for a number of reasons. (I used to but no more) They get a good deal on what I offer and the companies I deal with stand behind what they sell.

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Another Wisconsin printer writes: We added embroidery to our printing business in 1998. It was a very successful part of our business for 10 years. We sold the embroidery portion in 2008 and then sold our printing business in 2009. We started with a single head, ran that for 6-7 years or so then added a 4 head machine and paid it off within the year. Running an embroidery business certainly comes with its own set of headaches and challenges … It did fit well with our business and the dealer that sold me my equipment was a wealth of information for us. As always – it’s good to know what you’re getting into and what the challenges might be before you make that kind of investment.

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And another printer: Tom, very interesting article on Embroidery, and yes it’s very true and accurate. Customers/Prospects are “clever”; they know what they are doing with prices & materials. We all encounter pricing obstacles.

I endeavor to be fair to the customer, and maintain a reasonable profit. Yes, if a shirt is damaged it’s a LOSS and the customer doesn’t pay for spoilage. Every customer is uniquely different, so there is no standard of their acceptance.

We price the shirt at 50% profit off invoice (double the price); and we order a few extra shirts in the event of spoilage and actually add them into the price, so we are at 50% profit on Invoice. We also add in any shipping costs, artwork & digitizing – at 50% of invoice. Sometimes we deviate if necessary or we feel compelled to seal the deal. We start high enough, that we have good margins, and do everything possible to hold the margin, by selling our reasons for pricing. We almost always get our price; we will not work less than 40% profit of invoice.

Overs, we try to negotiate up front, there is a plus or minus, as there is spoilage in the process.

Customer supplied material, we will accept – they must supply extras, of each size & color or variance to the order to insure we finish with full quantity. It is also stated, we will use their material subject to inspection by us, to determine if we can use them. We do not replace or pay for any spoiled goods… they pay for every piece we handle; we’ll give them the spoiled ones.
We charge triple (retail) for embroidery, artwork, digitizing, shipping/delivery, to compensate for loss of profit on material.

It’s not worth working for free or lower margins. They will not receive better service or quality, and they have the option to go anywhere. Because, we also ask what they will be using the garments for : example on Polo Shirts, sometimes 100% synthetic is best, or a blend, or all cotton… even the color makes a difference in what type of material we suggest or what level of quality, fit, style, – poly-bagging or even boxing as a gift.

We do a lot, so we need to be compensated [but that is] easier said than done. I just had a client call me and they want me to supply them the ‘DST” file, the actual stitching – they could take that to another embroider – it’s like the printing plates, who owns them? We do. We’re discouraging them by asking them to find-out the equipment make model, tension, thread weight, and type of garments. Hopefully, we’ll retain the business, they love what we did. We re-did their logo to accommodate embroidery and actually took out all the air-brushing (Photoshop), their inexperienced artist did when making their logo. Also, we realigned their TYPE and ART so it really stands out.

Conclusion: If we don’t obtain good margins we can’t stay in business and be an outstanding supplier.

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Remember the last time an auto mechanic or plumber told you that your repair would be $90 an hour. How did you feel? Our customers feel the same way. While an hourly rate to establish an initial price is useful; overuse of it can cost us money and customers. That’s because both the printer and the customer need three things from a price plan: fairness, consistency and quick answers. Using hourly rates exclusively violate all of these and one thing more. Here’s why.

We usually have to use an hourly rate to establish an initial price. After all, it’s impossible to estimate something we have never done whether it’s an email broadcast or our first printing of enameled stock. It’s just that relying on an hourly rate as a price mechanism exclusively and forever presents problems, specifically the rate itself and the time you take.

The rate itself: this certainly is the first problem as a lotta folks have a lot of different methods. More than one printer said when I asked about what is charged for Email Broadcasting, “I took my typesetting hourly rate and cut it in half.” Why would someone do that? I suppose the thinking is that we are not using typesetting equipment so we should charge less. That’s stinking thinking.

Here’s another view. Most of us have one pre-press person and they can do either file manipulation or typesetting on our equipment or (notice the “or”) they can do Email Broadcasts and Social Media posts using an Internet service.

Now if your pre-press person is doing Email Broadcasts, then they aren’t using the pre-press equipment, right? Okay. So, who is using it? No one is. That’s right. So, whether we use the equipment or not; our costs for this person are the SAME.

In fact, most shops should not use machine hour rates for cost purposes for just this reason; rather should use people based rates. That’s because the constraint is the person who does the job not the machine. If you have a six-color with a three-man crew, then the constraint is the machine and thus a machine hour rate is called for as opposed to a person based rate.

So, if you carry the logic over to pricing from costing, then the retail rate should at least be the same as your pre-press or typesetting rate because the person can do either one or the other. But there’s even more to it.

Now, your retail rate for Email Broadcasts should be more than your typesetting rate. The data I collected bears me out. Why? Simple. Have many print shops can do typesetting? That’s right, about all of us. Now, how many print shops can do Email Broadcasting? Well, the answer is few in case you didn’t know it because less than 20% of the folks I contacted do it. And that means the selling rate of the prepress person doing this should be HIGHER than your regular typesetting rate, not lower.

Yea, butta the customer can do Email Broadcasts themselves. Yes. They can do a lot of things themselves but some hire someone else to do it instead. It’s like most everyone has a car and drives themselves but a certain number use taxis and chauffeurs. Not everyone cuts their own grass either. Plus, printing-wise, many customers could produce their newsletter but they bring it to us instead. Why? We keep the lists up to date; we make it look pretty; and some of us even do copywriting.

Most importantly, we do it and get it done on time. Don’t overlook that important point. Give us the job and we’ll see that your grass is cut (newsletter goes out) every time.

The time it takes: The more we do a task the faster we become, which is basically the learning curve. Often we get up to 50% faster especially with software-based tasks like Email Broadcasting.

So, using an hourly rate only as our retail price results in our lowering of price over time. And that is for the exact same work. Of course, the simple answer is to increase the hourly rate as we speed up. Nice concept but hard to implement.

Increased production is easy to see when we buy equipment that does something twice as fast. But with a person-based work, well it’s harder to see their productivity improvements for rarely are two jobs exactly the same. So the Email Broadcast you did six months ago which took two hours may take only one now even though both are as close to the same as possible.

Then there’s the practical problem. The customer paid for two hours of time six months ago or $180 and now, this month, it took an hour so that means the price should be $90. Do you charge $90 or do you use the same $180 they agreed to before? Understand if you use the previous price you are not using an hourly rate; rather you are using an hourly rate to establish a specific price for a specific job (price list).

Here’s a practical application. I had a hillside of weeds that needed to be cut periodically. The neighbor kid was willing to do the cutting but neither he nor I knew what I should pay to be fair. So we settled on an hourly rate and when he cut it the first time, I watched and even helped a little.

Now we both know the time it takes and settled on a specific price for each time he does the job. By using that fixed price, we avoid problems that the exclusive use of an hourly rate presents, the biggest of which is the wildly fluctuating price.

For instance, consider the Email Broadcast job that originally sold for $180 six month ago, but it took only an hour to do last time indicating a $90 price. Now, let’s say your regular operator wasn’t there and a replacement did the job in half an hour. Would you charge $45? What if they were less speedy and took four hours? Would you charge $360?

Why establish a price list?

An hourly rate can help you establish the value of an initial job, but you should convert it to a price list.

Printers and customers need three things from a price: fairness, consistency and quick answers. Only a price list (using standards within an estimating system multiplied by units is nothing more than a price list) provides these three things.

Fairness: as we’re often scared off by extremely low prices as well as extremely high ones, customers are also. We both are willing to pay a fair price for what we want; otherwise we’d never buy anything. Conversely, neither one of us are willing to pay an excessive price. And, when you think about it, both vendors and customers want each other to have a fair price. Why? Our customers need reliable vendors just as we need reliable vendors. And to be reliable, a vendor has to have a fair price in order to have the cash flow to stay in the business of providing the service.

So the question really is what’s fair? Biggest problem here from our side is that we can’t justify the price we ask the customer to pay. So, it’s just as much about negotiation skills as it is the actual price itself.

Consistency: Imagine the reaction a customer would have dealing with a printer who used an hourly rate exclusively in setting price: and being charged $800 to reprint a job in month one, $1,200 in month two and $600 in month three? When prices are not consistent, it raises issues of fairness to the customer and that’s when they turn to other vendors. Besides, if the job has a truly fair price of $1,200 in month two, why isn’t it being sold for that every month? After all, it’s not fair to the printer if it is not.

Quick Answers: I worked with a large company who found that when they returned a request for price to the customer the same day; 75% of estimates turned into orders. When the price was returned the next day, the close rate dropped to 25%. And the rate dropped to nothing as time went on (frequently estimates aren’t received for a week or more). So the printer is best served when prices are returned quickly.

Additionally, most customers have a time issue when they decide to have work done. The vast majority don’t ask about something they don’t need for that is a waste of their time. And because they are under time pressure; they often choose between early estimates regardless of how low in price the later ones are.

Using an hourly rate exclusively to establish price violates all three of these factors plus one more: it violates the trust factor.

Customers are highly suspicious of hourly rates. Remember when the auto mechanic or plumber told you that your repair would be $90 an hour. How did you feel? Our customers feel about the same way. On the flip side, contract pricing (price list) adds to trust. Now I don’t have to watch the neighbor kid whack the weeds on the hill. I know that if he’s done it; well, I owe him a specific amount. It’s fair, consistent and quick.

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Just because you’re the brilliant founder of this business does not mean you can retire in place and set up some sort of perpetual motion machine that will keep paying you cash forever without any further work on your part.

The General’s was having a staff meeting. The General was pontificating about a new marketing plan he devised while at the last trade show. The Lieutenant is worried since he just came back from the battlefield. The General hadn’t visited the battlefield in years. “Sir,” the Lieutenant says, “I know that you are fascinated with the latest tank and you really want one, but our battlefield is a swamp. And unless that tank can float, it won’t do us a lot of good.” The General agreed, but took all of the assets at his disposal and traded them for a tank anyway. He liked the salesman. Besides, he’s the big picture guy and doesn’t have time for details.” Think this army will succeed? I don’t.

Sometimes Junior and Junior Miss are right. And they are right most of the time when they are doing the work while Pop (and sometimes Mom) fiddles. Just because you have a successor in place and just because they are capable of taking on additional responsibility, doesn’t mean you can quit and do what you want to do. Someone still has to drive this car regardless of who owns it. And this boils down to the predecessor’s role in the business right up to the minute they turn it over to someone else and walk away. Instead of being the pontificating General, be a good President. Do what’s most important, not what’s most fun.

Yes, but some owners insist that they don’t have to work. Take this quote from a print shop owner from their local newspaper, “(running a print shop) isn’t all it’s cracked up to be, but I hope to build something for the future … I guess everybody has that dream of someday sitting back and having someone else run it for you,” he said. “It hasn’t happened here, yet.” Well, it’s not going to either. If that is your idea of being successful, then get a better idea. All you want to do here is to do what’s most fun.

Do you have enough money to retire now? If yes, go for it and do what’s most fun. If no and especially if the business is going to form part of your retirement, then get busy.

If you need $750,000, then is your business worth that? If yes, then sell the business to junior for that amount (or to someone outside the business) and get out of the way so junior or junior miss can make more money and don’t read any further. You don’t need to work since your goals are already met.

But, if it’s not worth that, then you’d better be working on the business, polishing it and improving it until it is.

Remember, only about 35% of all businesses available for sale in the US really sell. So, if you have a successor in place, you’d better be training and teaching. And guilt is not a transition plan. Just because you bred them, fed them and led them doesn’t mean they will stay put forever. This is particularly true if there is more than one.

Yes, I know that your parents didn’t give you a business. But, you’re not going to give it to your kids either. You’re going to sell it to them. Why? You’re going to sell it to them because that’s the fair thing to do, especially if there is more than one sibling. Yes, the lawyers and accountants will encourage you to work it out in some sort of transaction that may not be an outright sale, but the idea is the same. The business is worth so much. You should get only so much and the next generation should pay only so much based on what the business is worth.

Don’t whine that your kids ought to run the business because you bred them. These kids have great opportunities, especially if they went out to get a real job. Either they have the skills or you are protecting them from reality and they will fail after you’re gone.

If they have the skills, then you need to pay them what they are worth. The concept of “one of these days this will all be yours” is only valid if you discount the price to them based on their work over time. Don’t expect them to be underpaid for twenty years and then pay you a premium for the business. You will be robbing them of the money they need to succeed.

So, in an effort to make life simpler, I offer the following 12 concepts.

1. The business leader must select, train and install their successors in their lifetime (Dr. Leon Danco, Inside the Family Business, Center for Family Business, Cleveland, Ohio). And I add that it is not enough to just be a member of the family. You must choose from among all qualified to lead the business, not just among your sons or daughters. You must be willing to train them to run the business. If they are not willing or are un-trainable, you must move on to someone else.

2. There can be but one leader of a business at a time. You cannot retire in place. A leader does not prepare their successor by stepping aside yet staying at the helm. This frustrates successors and infuriates predecessors.

This conduct can lead to no one directing the business and no one taking responsibility. The ship is adrift and the pilot is teaching the first mate a lesson by running the ship ashore. Good job. The leader (king) must remain leader (king) until the next leader (king) takes the helm. To do less is to abdicate responsibility.

Or, this conduct often leads to the successor pretending to run the business. “I do everything but the checkbook. Dad still does that.” This is not preparation. This is “playing business.” Further, giving a successor checkbook responsibility and then taking it back as punishment is a sure way to kill a transition.

3. You cannot make demands upon the successor that you will not willingly do yourself. Go sell. Learn how to produce. Learn about finance. You are in charge until the successor is in charge. The worth of the business at the time of the transition is based upon what you do, not what the successor is expected to do. One person and one person only can run a business.

You must understand the concept of command. You in charge regardless of whom may advise and assist. You would be wise in listening to all those under your command, whether they are related or not. And you would be wise in not placing too little weight on what the other participating family members say, as they would be wise in not placing too much on it.

4. It is impossible for you to give away your responsibility to run the business. It is not possible for you to “share” power or do part of a function. It is only possible for you to assign real functions (jobs) and then see that the jobs are carried out.

5. You are responsible for the results of the business until you have finalized the transition (sale) of the business. You must be part of this performance-oriented concept and not be a drain on performance.

In family-based businesses, we founders take the assets from the family and put them into the business. Therefore, we are responsible for returning to the family MORE money and MORE time than we would otherwise. And if we are not doing that, then we need to fix it so it happens, or we need to go get a real job.

6. You, as leader, assign jobs (authority) to all within the business. You must also assume responsibility to see how these jobs are carried out. You must lead and do so with enthusiasm, loyalty to those serving under you and eagerness. You do not have any more authority over others than what they are willing to give you. You earn the right to lead, you cannot command it.

7. It is from assuming leadership that others will follow you as well as learn, participate and achieve. If you don’t accept the responsibilities of leadership, you can never be expected to develop a successor, let alone a successful business.

8. It is as important for you to earn the confidence and acceptance of the workers under your command. Not assuming responsibilities for leadership will be met with resentment, confusion and conflict; not only from the successor, but from other workers as well.

9. You MUST know the business of your business. You must have a good work ethic. You must lead people; you must never manage them. You may not be less academically qualified than your successor but that does not mean they know what you do. You must teach them what you know. They cannot learn it any place else.

10. You set the work ethic of the organization. If you do not work hard, you cannot make them work hard. If you lie, cheat and steal, they will lie, cheat and steal. It is up to you to insist that the successor adopts and learns your work ethic that has made your business successful. If the successor refuses, get another successor.

11. The successor must have specific technical knowledge gained by serving in various jobs in the business. In doing these jobs, the successor has no more authority than anyone else. It is through the development of the technical competence of the organization that the successor is best prepared to lead. It is your duty to see that the successor is so trained.

12. It is the successor’s job to accommodate you; it is not your job to please the successor. However, it is not your right to insist that the successor do what they are unwilling to do. It is your right to choose another successor should that happen. And it is not your right to retire in place.

And there they are – twelve concepts for you, the predecessor to consider. I don’t think they can be ignored without adverse consequence.

Tom Crouser
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