What to Consider Before Expanding
Every business owner faces the decision of whether or not to expand their operations to meet prospects for growth within their market. This article discusses considerations that business owners should make before deciding to raise money, hire staff, and pursue new sales.
Advantages of Expanding
Gaining market share through expansion is pointless unless profits also increase. The benefits of spending money to grow your small business include:
- Developing a new product line.
- A proportionate savings in costs gained by an increased level of production.
- Increased capacity to attract qualified staff who can further improve the organization.
- Expanding geographically to take advantage of opportunities in other markets.
- Access to a wider variety of financing (at a lower cost) from banks and financial institutions.
- Eventually becoming a public company so that shares in the business can be bought and sold on a stock exchange, giving ownership an opportunity to sell shares and recoup their investment.
Many successful brands started out as home businesses. The founders of Spanx, Craigslist, and Under Armour all famously started and grew their businesses from home.
A home business that’s forecasting growth may choose to move into a commercial office space, especially if new staff are being hired, or the business requires regular face-to-face meetings with clients, press, and tradespeople.
Increased Sales vs. Costs of Expansion
Expansion may be necessary to increase sales, but increased sales may not materialize unless it’s apparent to the customer that a business is large enough to handle the large sales volumes. The ideal situation is to have new sales secured before expansion.
Make a forecast for the costs of expansion, including all leases, moving fees, increased utilities, additional staffing, and as many other estimates as possible. Next, do a breakeven analysis to determine whether expansion is likely to provide the expected return on investment.
If you’re relocating, take into account that you will lose some of your existing customers, and that you may need to incur additional advertising costs to drive business to your new location.
Unless your business has sufficient retained earnings to cover the costs of an expansion, outside capital will be necessary to make your dreams of growth possible. If your business is on solid financial ground, and has a track record of loan repayment, it will be much easier to secure debt financing for your venture. Businesses tend to put up collateral in the form of assets and accounts receivable, and approximately 6.6 million small business loans (totaling $242 billion) were reported in 2017, with 93% of those loans being issued for less than $100,000.
If your business is incorporated, or you intend to incorporate as a part of your expansion, then you can raise capital through equity financing. Equity financing involves selling shares in a business to outside angel investors.
Angel investors do not normally involve themselves in the management of the business but do expect a significant rate of return (>25%) on their investment. As of 2017, U.S. angel investment was approximately $24 billion, and contributed to the growth of more than 64,000 startups.
Obtaining Qualified Staff
One of the greatest challenges of growing or maintaining a business is finding and keeping qualified staff.
The problem is particularly acute with skilled trades, information technology, and occupations that require specialized training and experience. If you’re unable to hire and keep experienced staff to help your business grow, you will need to train new employees as they’re hired. Contractors or part-time employees may fill temporary gaps, but more than half of the small business owners surveyed in a 2019 study reported few (or zero) qualified candidates for the job openings they posted.
In some jurisdictions, you may be required to provide health insurance or other benefits if your business staff exceeds a certain number. In the U.S., the Affordable Care Act mandates that larger businesses (those with more than 50 full-time equivalent employees) offer health benefits to their workers.
If your company is a sole proprietorship, you should consider changing the legal structure of your business to a corporation before hiring payroll employees, as a way to reduce owner liability.
Growing a business demands more complicated management. Growth is characterized by serving more clients and supervising more staff, and business leaders must select and delegate tasks effectively within their team.
As a business owner hoping to scale, operating additional locations is a challenging adjustment, given that your presence is so directly associated with the brand. Customers that are used to your personal attention may be reluctant to form relationships with unfamiliar employees or partners.
Scaling a Business the Smart Way
Running a business requires long hours, and fatigue can take a toll on your relationships, health, and management style. Take into account the additional stress you’ll be placing on yourself before committing to any plan. Following a rigorous forecasting methodology will help you determine the smart way to expand your business in spite of the financial risks.
While the student lender has posted solid net income growth in recent quarters, it faces a murky future that has investors cautious.
The novel coronavirus pandemic has impacted almost every aspect of our lives. One area that has drastically changed is the education system. For college students, this means choosing whether to go back to campus, take classes remotely, some mix of the two, or, in some cases, even forgoing college altogether.
Private student loan provider SLM Corp. (NASDAQ:SLM) , better known as Sallie Mae, is all too familiar with the struggles faced by the educational industry amid the pandemic. The future success of Sallie Mae hinges on student borrowers graduating, getting a job, and making payments on their private loans. It also relies on new students enrolling in colleges and universities on a consistent basis as its primary source of loan origination.
Sallie Mae investors are stuck in limbo as far as valuation is concerned, with the stock sitting at what appears to be an attractive price-to-earnings ratio of 7.4, considering the stable bottom-line earnings performance in recent quarters. Is Sallie Mae a good value buy, or is it a value trap?
Image source: Getty Images.
Management’s biggest concerns
As I said, Sallie Mae relies on two things: graduating students getting jobs and making loan payments, and a continuous flow of new students seeking out new loans.
On the former point, CEO Jon Witter expressed concern during the Sallie Mae’s October earnings call that companies could be limiting hiring, but he remains optimistic about recent graduates’ employment prospects. He pointed to the usage of non-disaster forbearance, graduated repayment programs, and other assistance programs (which are comparable to previous years) as positive signs for the student lender.
However, he warns the company won’t gain more clarity on this front until the end of the current November-to-April period, when the most recent graduate cohort enters repayment. In fact, in November and December alone, $2.4 billion worth of Sallie Mae loans are slated to enter full principal and interest repayment.
On the latter point, enrollment is a concern as well. According to the National Student Clearinghouse Research Center, undergraduate enrollment is down 4.4% compared to last year, and overall postsecondary enrollment is down 3.3%. Not only that, but freshman enrollment is down a whopping 13%, including a decline of 19% at local community colleges. For this reason, Sallie Mae management expects full-year loan originations to decline 6% year over year.
Yet another concern relates to federal student loan borrowers, whom have been on a payment holiday since the CARES Act was passed March. This payment holiday is expected to lapse by the end of the year, barring any stimulus agreement by Congress before then.
Management at Sallie Mae is concerned that a lapse of this federal student loan payment holiday will increase its customers’ financial burden, which could leave them unable to make payments on their private loans. According to the company, its borrowers have a monthly federal loan payment of about $400 per month in addition to their $277 per month worth of Sallie Mae loans.
The lender has navigated 2020 skillfully
On a positive note, Sallie Mae’s third-quarter forbearance rate was down to 4.3%, compared to 9.3% in the previous quarter, with 97% of customers who initially received COVID-19-related disaster forbearance no longer needing it.
Despite a tough environment, the lender managed to increase net income in the most recent quarter by 33% to $42.6 million. The first nine months of 2020 have also seen net income rise 3%, or $11 million, compared the same period last year. But to get a true idea of how net income grew despite the pandemic, you have to dive deeper into the line-items on the income statement.
On the top line, total interest income (the company’s primary source of revenue) was down $108 million in the third quarter, or an 18% decline compared with the same period last year. In the first nine months of the year, total interest income was down $188 million, or an 11% decline. This reduction in interest income is to be expected with declining enrollment and increasing forbearance.
While interest has declined, the provision for credit losses during the third quarter declined, by a total of $103.1 million, while operating expenses declining by $26 million. For this reason, the company managed to post net income growth of $42 million compared to the same quarter last year.
In the first nine months of 2020, net income is up $11 million, or 3% compared to the same period last year. This growth was largely thanks to the gain on sale of loans of $238 million in the period, bringing total non-interest income for this period up $277 million, or 526% year over year.
The company continues to stay well-capitalized and maintains strong ratios on its balance sheet. Risk-based capital requirements are minimum capital requirements for financial institutions set by regulators to prevent them from taking on excessive risk. Institutions are considered to be well capitalized when risk-based capital is 10% or higher and their common equity tier 1 ratio (CET1) is 6% or higher. Sallie Mae easily clears those hurdles, with a 13.9% total risk-based capital ratio and a CET1 ratio of 12.7%, putting it on strong financial footing..
Sallie Mae is a value stock worth considering — with a caveat
Although Sallie Mae has seen net income grow year over year, it’s not exactly the type of growth that is sustainable in the long run. In order to draw in more investors and warrant a higher valuation, the company must continue to grow it loan portfolio and related interest income. The lender expects competitors to scale back participation in the student loan industry, which could create future opportunity in a private education loan market that’s growing at a pace of 6% annually.
Still, Sallie Mae appears to be a value trap — primarily due to the fact that there is still such uncertainty about student enrollments, employment prospects, and the lack of clarity of the federal student loan holiday. Investors are best advised to sit on the sidelines until we learn more about the graduating cohort’s repayment ability, which should become clear in the first few months of 2021. Positive developments in the job market and in college enrollments by that time could make Sallie Mae a great value buy.
Scaling a business comes with any number of challenges, in all parts of your operation. Everything from supply chains to human resources to product development have to be more efficient and effective to keep up with an increased demand.
This includes billing and accounts receivable management, which will be among those most impacted. A significant increase in volume will likely lead to more manual work, inaccurate invoices, revenue leakage and frustrated customers, all of which can stunt your growth or even send you backwards. How you’re set up to handle growth for the A/R function can make the difference between barely keeping billing and collections covered vs. professional accounts receivable management.
A sound strategy and understanding of potential pitfalls can help your billing and collections operations scale with revenue without missing a beat. There are several factors to consider, however, before you do that.
Is your A/R function elastic?
There will be weeks when you’re at 50 percent of your billing capacity – and there will be weeks where sales double and your process is overwhelmed. You need an accounts receivable management operation that can increase or decrease capacity depending on needs – and do so quickly.
Whether through technology or talent, you need to provide a customer experience that is consistent and accurate. Invoicing is a primary touchpoint between you and clients. Not investing in it is a missed opportunity.
Are you prepared for the future?
The invoicing process has, like most parts of business, greatly evolved as technology changes how we do almost everything. Is your A/R function ready to take advantage of the next round of changes? Is it open to changes like using AI to predict cash collections? Or is it more intransigent and tied to how things have always been done.
Not embracing the changing future very well may cost you financially or leave you less competitive in the marketplace.
Are legacy systems holding you back?
Maybe you want to embrace that new technology, but converting your old accounts receivable management workflows to a new platform is technologically impossible. Your current setup is a mishmash of legacy systems that sort of work for your current state but wouldn’t hold up under an increase in volume.
It may require acquiring new technology or talent – or developing existing talent – but it will be far more painless to do in the growth stage than during maturity.
Are you making the most of automation?
One of the most important things you can do to to keep up with an increase in billing volume is to automate what used to be done manually. Nearly every aspect of accounts receivable management, such as dunning, forecasting, payment acceptance and reporting and more, can be done with a one-time setup, potentially saving thousands of man hours and an untold amount of dollars.
At a low volume, you can still keep the personal touch that comes with billing by hand. That’s just not realistic as invoices increase. By automating certain accounts receivable management tasks, you can keep up with customer demands.
Are you reporting the right metrics?
At a low volume, it’s fine if your billing operation is tracking on the basic metrics, like days outstanding. However, a larger operation should be taking advantage of “advanced” metrics that provide a more holistic view of how your accounts receivable management function is performing .
A sophisticated approach would include reporting on metrics like:
- Sales by Item – A detailed look at what products were sold and how much
- Accounts Receivable Aging – How long have overdue accounts been so?
- Billing Communications – How many emails have been sent regarding late payments? How many phone calls or letters?
Are you able to effectively integrate new talent?
An increase in billing volume will no doubt create the need for an increase in headcount. How effective can you be at bringing new talent in, integrating them into your – changing – organization and quickly getting them up to speed?
This could be a significant amount of new faces and maintaining governance and security will be paramount.
These 6 considerations for scaling accounts receivable management aren’t the only things to think about as you set forth on your rapid growth journey, but they’re certainly among the most important for keeping pace with the overall size, speed and scale of the business. The best CFOs, accounting managers and financial operators will have answers to these questions before they’re asked by their CEOs.
Preparing for your company’s next stage of growth? Get a demo of our award-winning A/R Cloud so you can scale without the fail.
When it comes to your account-based marketing strategy, what would you say is the most challenging part? If you said personalized content, you’re not alone. A recent survey of B2B marketers revealed that while creating personalized content for each account is one of the most effective ABM strategies, it’s also one of the most difficult to execute.
Much like gift-giving, it’s thoughtful outreach that makes people feel like they matter and want to engage with your company more. But I’m sure the thought of adding one more thing—let alone hundreds of personalized things—to your plate is enough to put you in a bit of a panic. Personalized content is great, but is it really scalable?
How Personalized is Personalized?
It’s important to remember that ABM isn’t always one-to-one marketing. Sending a high-value prospect tickets to their favorite sports team is sure to make you stand out, but depending on how many target accounts you’re working with, it’s typically not something you can do for everyone.
This is where it becomes especially important to determine your ABM approach. Are you targeting eight people or 800? How much do you know about your target accounts? These are some of the considerations you’ll want to keep in mind when determining which type of ABM is right for you.
One-to-One ABM: This is what comes to mind when most people think of ABM. For this type of ABM, marketers are creating highly customized programs for individual target accounts. It makes sense if your deals are six or seven figures, you have adequate resources, and you have enough intel on your target accounts to get really personal. Because it’s at the top of the investment chart, one-to-one ABM typically requires the most effort, but can also have the highest return.
One-to-Few ABM: This approach is similar to one-to-one, but is applied to small groups of accounts. One of the easiest ways to group accounts is by combining those that share similar challenges. For our one-to-few outreach at Uberflip, we look at accounts that use the same tech, are the same persona, and have the same challenges and create a direct mail play, ads, and content streams that speak to all of those accounts, and lightly customize the rest.
One-to-Many ABM: This is where you need to lean on tech to scale your ABM program. Whether your team is small or your resources are limited, an ABM solution is the only way to create personalized content experiences for hundreds of accounts at once and still make meaningful connections. Targeting a large number of specific opportunities is less personalized than other approaches, but still more personal than traditional marketing. On an account-by-account basis, this approach is low cost with high return.
Distributing Personalized Content (Without Getting Creepy)
Once you’ve decided which level of personalization you’re going to use, the next step is to decide how you’re going to distribute it without freaking anyone out. What I mean by that is, you must also adapt your level of personalization to the channels you’re working with. Including someone’s first name in an email? Cool. Calling out someone by name in an ad? Too much. So, what are the best practices for each channel?
Marketing Email: Email is the most effective content distribution method across the board. For one-to-one or one-to-few outreach, you can hand-pick content that suits a very specific set of needs. For one-to-many outreach, you can send out automated emails that are segmented based on pain points and interests.
Paid Ads: Paid ads that target your top accounts can help capture their attention and push content that they may be interested in. For one-to-few or one-to-many outreach, you can even call out specific pain points or company names, but stay away from calling out anyone by their name. That’s creepy.
Direct Mail: While traditionally used for gifting, direct mail can be used to promote and distribute tailor-made content for ABM. Direct mail is a great opportunity to capture people’s attention with a gift and then push them to a personalized online destination.
Social: When it comes to distributing personalized content on social, there’s a fine line between getting personal and getting creepy. It can be effective to tag target accounts in content they may like (I often do this on my own LinkedIn), but avoid sliding into anyone’s DMs with a piece of personalized content.
ITSMA describes ABM as “treating each account as a market of one.” If you only had a market of one customer, you’d pull out all the stops to engage every possible stakeholder and personalize each and every touchpoint to cater to their specific needs. Personalization at scale allows us to execute this approach for more than one account at a time. To ensure you can execute, I challenge you to really think about how you’ve tiered your accounts to determine if personalized content is scalable with your current approach.
If the idea of creating hundreds of pieces of personalized content for your account-based marketing strategy keeps you up at night, check out Uberflip’s no-fear guide to scaling personalized content.
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The Editor outlines rules for those who wish to write a terrible article.
As Editor I have from time to time in this column offered advice to authors on the desirable elements of a good research report. Like contrary children, for some authors such advice seems to vanish like smoke in a wind. So I take here a different approach, based on the idea that some folks have a knack for doing the opposite of what is recommended to them (like contrary children). I present some guidelines for how to prepare a research report that is variously boring, confusing, misleading, or generally uninformative. Whether the author’s project is imaginative (or not) and the experiments are done with skill (or not) and the data are scientifically meaningful (or not) is irrelevant. My advice is solely based on principles of presenting the objectives, experiments, results, and conclusion in a fashion that as such no one will finish reading them or, if they do, readers will have little chance of understanding or remembering them. Like any form of skillful writing, following the rules below for awful writing requires practice and a lack of mental concentration.
Never explain the objectives of the paper in a single sentence or paragraph and in particular never at the beginning of the paper.
Similarly, never describe the experiment(s) in a single sentence or paragraph and never at the beginning. Instead, to enhance the reader’s pleasure of discovery, treat your experiment as a mystery, in which you divulge one essential detail on this page and a hint of one on the next and complete the last details only after a few results have been presented. It’s also really fun to divulge the reason that the experiment should successfully provide the information sought only at the very end of the paper, as any good mystery writer would do.
Diagrams are worth a thousand words, so in the interest of writing a concise paper, omit all words that explain the diagram, including labels. Let the reader use his/her fertile imagination.
Great writers invent abbreviations for complex topics, which also saves a lot of words. Really short abbreviations should be used for very complex topics, and more complicated ones for simple ideas.
In referring to the previous literature, be careful to cite only the papers that make claims that would support your own, especially those that contain little evidence for the claim, so that your paper shines in comparison.
It should be anathema to use any original phrasing or humor in your language, so as to adhere to the principle that scientific writing must be stiff and formal and without personality.
Your readers are intelligent folks, so don’t bother to explain your reasoning in the interpretation of the results. Especially don’t bother to point out their impact on or consistency with other authors’ results and interpretation, so that your paper can be an island of original thinking.
So these are a few simple rules for poor scientific writing. If you follow them faithfully and your paper is rejected or never cited, irrespective of your native brilliance, you have nonetheless been successful as a poor writer.
Free Book Preview: Coach ’Em Way Up
Back in 2006, when Jonathan Goldman arrived at the LinkedIn headquarters, the company still had just under eight million accounts.
Goldman, who had a PhD in physics from Stanford, started looking at the richness of user profiles and began to imagine ways to capitalize on the information he studied. While the data proved unwieldy and messy, he began formulating theories and possible new features to help scale up the site.
Perhaps not surprisingly, the engineering team wasn’t very interested in his findings, if not dismissive altogether. After all, why change the status quo?
Fortunately, as Thomas H. Davenport and D.J. Patil write in their story for Harvard Business Review, LinkedIn’s co-founder and CEO at the time, Reid Hoffman, “had faith in the power of analytics because of his experiences at PayPal, and he had granted Goldman a high degree of autonomy.”
That decision would end up being fruitful and would significantly shape the company’s upward trajectory. By making Goldman its “data scientist,” Linkedin was able to capitalize on big data and become the powerhouse it is today.
Don’t miss out on data’s vast potential
This may not come as a surprise, but the way many companies address their data is all over the map these days. From not fully trusting analytics to actually recoiling from it — many leaders have trouble engaging with their data and are missing out on strategic opportunities.
According to a Harvard Business Review report, executives, managers, and professionals are plagued by inaccurate, obsolete, or hard-to-access data, exacerbating the stresses of making decisions in real time. “The need for accurate, timely, and insightful decision support has never been greater. Yet many organizations struggle to capitalize on analytics’ vast potential.”
All of this is to say, you can keep operating by the seat of your pants or you can begin to skillfully use data. Here’s why I recommend the latter.
Aligning your data efforts and strategy accelerates growth
“It is important to remember that the goal is not simply to get all you can out of your data,” writes Thomas C. Redman. “Rather, you want to leverage your data in ways that create new growth, cut waste, increase customer satisfaction, or otherwise improve company performance.”
He adds: “Successful data programs require concerted, sustained, properly-informed, and coordinated effort.”
At my company, JotForm, we treat analytics as an opportunity to optimize human potential — using it to challenge our assumptions, develop new insights, and use what we learn to take action. What’s more? By positioning ourselves as students, we don’t only reinforce a positive culture, we are also better able to serve our customers.
In writing for the U.S. Chamber of Commerce, Leslie Bradshaw explains that
“The significance of Big Data to businesses, marketers, and the entire global economy is well established.” However, “One important caveat hasn’t been emphasized enough though: without strategic vision and careful planning, even a treasure trove of Big Data will only serve to distract business operations rather than drive business success.”
How to help your team be more strategic with data
Indeed. You want to think of the bigger picture here. Helping your team become more strategic with data involves asking yourself the following questions: What changes need to be made by my organization? How will I implement my plan? What should we prioritize?
And then communicate these insights across the board. Only then can you identify potential opportunities and chart a course for reaching your goals. As Bernard Marr writes in his column for Forbes “A good data strategy shouldn’t be created in isolation.”
Once you’ve decided on the right approach for your business, below are some tips to help your team meet these objectives.
1. Start with the right tools
First of all, identify the technology you need to incorporate — what are your hardware and software needs? Where could you improve?
For example, if you’ve been hacking spreadsheets as a database and have become frustrated with it as a workflow tool, I’d like to encourage you to please stop now.
Excel is many things — it’s technically sophisticated and great for complex statistical analysis. What it is not — however — is user-friendly when it comes to tracking work.
Hear me out: Collecting and tracking data shouldn’t be a drag.
There are a multitude of ways to be more strategic with your information and make things easier for your organization to collaborate more efficiently.
Take our latest product, JotForm Tables, which is a workflow tool for when spreadsheets just aren’t enough for your team. It’s an all-in-one workspace you can share in one click, and a no-code database with powerful online forms to help organizations better manage their information.
By improving internal workflows, it’s our hope to make people’s lives easier and make data strategy more accessible to everyone (not just tech extraordinaires).
2. Teach people how to think of data more effectively
Having the right data strategy isn’t just about hiring data scientists and engineers. “Often, the main stumbling block for companies wanting to get more out of data is the lack of data skills and knowledge,” writes Marr. “Therefore, this is a critical part of your data strategy.”
Marr, who’s helped many of the world’s most successful organizations implement their own data strategy, emphasizes leadership awareness when it comes to identifying and achieving your objectives.
Basically, it all starts at the top.
“Your leadership team needs to understand why data is important and how data can help the business achieve its objectives,” he explains.“Ideally, this culture of data will filter throughout the whole company, so that everyone at every level is aware of the power of data.”
The bottom line: The right data strategy breeds opportunity
“Large data sets and sophisticated analytics can create new products,” writes Bradshaw. It also allows leaders to “enhance existing services, significantly improve decision-making, mitigate and minimize risks, and produce valuable insights about operations and consumer sentiment.”
But all of this is made possible by being forward-thinking. As the case with LinkedIn’s CEO Reid Hoffman, having faith in the power of analytics and being strategic with how to capitalize on the information gained — proved to be a winning combination.
As Bradshaw puts it: “Unlocking the potential of Big Data is a puzzle for business executives and entrepreneurs, but also an opportunity.”
Featured Columnist: Isabel Lester
Advocating for yourself and knowing your worth are the first steps towards empowerment. Millennial women are the largest generation of well-educated women, but studies show that we are still significantly less likely than men to negotiate our first salary raise.
Some women think that salary negotiation is not an option for an entry-level job, while others decide that the social cost of rejection outweighs the benefits of an increase in salary, and therefore forego the process altogether.
While conversations about compensation are certainly anxiety-inducing, there are a few ways to ensure that you conduct a professional and appropriate negotiation, therefore reducing anxiety. Remember, negotiating for a higher salary shows that you are actively engaged in managing your career, and that you own the responsibility. This attitude commands respect, no matter the outcome.
Step one is simple; make the decision to negotiate. If you’ve been offered a job, not only are you qualified for this position, but you are also wanted for this position. The company sees value in adding you to the team.
Step two: Understand your boss. What does she need? What are his goals? What are the team’s goals? Does your boss have the authority to increase your salary? Does he need approval from HR? Does she need to plan your salary increase into her budget cycle? Proper negotiation requires you to understand the other party’s needs and wants, as well as understand what decisions are within their control. If you don’t know the answers to these questions, find out.
Step three: Understand your worth. What do you add to the team? What was your knowledge and skillset when you started? Has your responsibility increased? Are people relying on you? How are you helping your team achieve their goals?
Set a specific time for this conversation and inform your boss what you wish to discuss beforehand. This is an opportunity to demonstrate that you are actively managing your career. Plus, no one likes to be blindsided in these kinds of conversations, so it is better to give your boss fair warning.
The best way to calm nerves is to be prepared. Before you begin the conversation, equip yourself with information on what comparable jobs pay in other firms similar to yours. Generate a set of questions that your boss/HR may ask you during this conversation, and be prepared to answer them. Take this literally — write down a list of potential questions, and practice answering these questions out loud.
Use your resources. Practice this conversation with a friend. This will probably feel silly at first, but persevere through the blunders, because this conversation may prompt some potential questions that your boss might have for you.
If possible, find a woman who is more advanced in her career to be a mentor. You don’t need to have an extensive relationship with someone in order to ask for advice; chances are that a potential mentor will be flattered that you are reaching out for advice, and will be eager to help.
Enter the negotiation with confidence and optimism. After all your preparation, no matter the outcome, you will have taken charge of your career. Go into your meeting being proud of your decision to be actively engaged.
Finally, be kind to your boss. He/she is only human. This is a relationship, a negotiation, and an ongoing conversation. You may not get what you want in round one, but you have set the groundwork to follow up in 6–12 months.
Your first job salary negotiation has a lasting impact on your attitude towards your career. Negotiation is a skill that improves through practice. Start now, so it becomes part of who you are.
Associate Isabel Lester brings project management and both marketing and technical experience to Bohner Bespoke. For companies on the East and West Coasts, she has overseen accounts and organized data collection and distribution for a variety of projects. In addition to designing and organizing marketing campaigns for companies as diverse as a ski resort and a construction company, Isabel created and directed a video to promote student involvement in College Track, which recruits and mentors underserved students through the college application process. Isabel has a Bachelor of Arts in Economics and Digital Media from Claremont McKenna College. She played varsity soccer for four years at Claremont, and is an avid skier.
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Free cash flow is a measure that helps business owners, investors and others assess a business’s financial performance and outlook. Free cash flow is defined as operating cash flow minus capital expenditures. Strong free cash flow can indicate that a company is well-run and making money off its operations. It can also be affected by investing more or less in long-term capital assets, changing the way a company collects from customers and pays suppliers and by selling off corporate assets.
Calculating Free Cash Flow
Figuring free cash flow requires subtracting capital expenditures from operating cash flow. The formula looks like this:
Free cash flow = operating cash flow – capital expenditures
Calculating free cash flow starts with figuring operating cash flow. To figure operating cash flow, subtract operating expenses from total sales. Operating expenses consist of costs such as employee wages and salaries, rent, utilities, insurance, repairs and supplies that are necessary to keep the business running.
After calculating operating cash flow, determine capital expenditures (CapEx). CapEx consists of expenditures used to acquire assets that will be useful beyond the current tax year. It may include land, buildings, equipment, machinery, vehicles and the like. A line item for CapEx is found in a company’s cash flow statement. To figure CapEx, take the value of the company’s property, plant and equipment (PP&E) from the current year or other period. Subtract from that the PP&E figure from the prior period. Add back in depreciation charges for the current period to get CapEx.
For example, a landscaping company with annual sales of $200,000 and operating expenses of $50,000 would have operating cash flow of $150,000. CapEx came to $40,000 for a new vehicle and mowing equipment. So it’s free cash flow would be $110,000.
Annual sales $200,000 – Operating expenses $50,000 – CapEx $40,000 = Free cash flow $110,000.
Uses for Free Cash Flow
Generally speaking, more free cash flow is better than less. There’s no specific percentage of sales that is a benchmark for free cash flow. However, higher levels of free cash flow indicate that a company is more profitably serving its customers. Public companies, especially those that are not generating a profit, sometimes highlight strong free cash flows as an indication that they are running the business skillfully and responsibly. Stock analysts may point to high levels of free cash as an indicator that a company could raise its stock dividend, buy back its own shares, acquire another firm or take other actions to boost share prices.
Low levels of free cash flow could indicate that a company is not adequately funding its operations using internally generated cash flow and eventually may need more cash from lenders or investors. However, free cash flows might also be low if a company is making long-term investments in big-ticket business assets that will help it do better in time.
It may be more important to be able to show that free cash flow is increasing over time or at least stable than that it is at a certain level. A business with decreasing free cash flow may be on a long-term trend toward insolvency unless whatever is causing the decline is corrected. In addition to business owners and managers, lenders, investors and prospective partners may all use free cash flow as a way to evaluate a business
What Affects Free Cash Flow
When free cash flow is low or declining in the absence of large capital expenses, it’s not always a sign of weak management or poor financial health. It could also be caused by a single large order of inventory, a period of unusually rapid growth or an increase in working capital.
Likewise, ballooning free cash flow isn’t necessarily positive. Free cash flow can increase if the company begins selling corporate assets, reducing investments in long-term assets or cutting outlays for activities such as maintenance and marketing. Free cash flow can also be increased if a company begins paying its suppliers more slowly and accelerating receipts from customers. A one-time event such as a large deposit for a big order can temporarily increase free cash flow.
The Bottom Line
Free cash flow shows how a company is doing at generating cash from its operations, after accounting for the effects of any big-ticket capital expenses. It can indicate whether a company is in good financial health and running efficiently and effectively or potentially headed for long-term challenges.
Every individual employee contributes to the success (or failure) of your business. Of course, the goal is to continuously improve the quality and efficiency of your workforce. But without a clear understanding of which factors influence employee performance, it will be difficult to sustain success.
So what is employee performance? Which factors should leaders pay attention to, and what can you do to empower your employees to succeed?
What does employee performance mean?
Employee performance is defined as how an employee fulfills their job duties and executes their required tasks. It refers to the effectiveness, quality, and efficiency of their output.
Performance also contributes to our assessment of how valuable an employee is to the organization. Each employee is a serious investment for a company, so the return that each employee provides must be significant.
Business Insider investigated just how much revenue top tech companies make per employee. A high-performing employee is extremely valuable to a company. In fact, there is no greater asset than top talent.
How can you measure employee performance?
Measuring employee performance will differ across roles and departments, but generally, it can be measured by:
- Speed and efficiency – How much does the employee accomplish in an average day, month, or quarter? Are there impediments to address or possible resources to consider that could enable higher productivity?
- Quality and depth – How “good” is the employee’s work in comparison to colleagues and other employees in the same role, field, or industry? Does the employee contribute something unique to their role that brings the company added value?
- Trust and consistency – Can the employee be depended on to make good decisions and execute their duties on time? Do they need to be managed meticulously or do they self-manage well? Do they demonstrate the potential to grow within the company, or has their growth plateaued?
The specifics of these metrics will differ depending on the specific job function. All employees (and their supervisors) should be aligned on the goals and expectations that underpin each metric. By establishing clear objectives and timelines for achieving them, each employee should understand exactly what is expected of them.
How can you conduct an effective employee performance review?
Although the specifics vary, there are a few great ways to create a performance review. Out the options, choose which approach will best assess the employee and provide information that will be most effective for improving their performance:
Schedule a one-on-one meeting between the employee and direct supervisor to brainstorm. This is a great tactic for employees that are engaging, like direct feedback, and feel comfortable voicing their own experiences and opinions. It’s also an opportunity to communicate and make sure that there is transparency between the employee and leadership. Here’s a template to fill out and to help guide the meeting:
Use a number scale rating chart. This option provides concrete metrics that allow for easy comparisons in performance between employees for context. It also can be filled out quickly and easily and therefore can be done often. A number scale rating chart usually lists performance metrics and then offers boxes to check between 1 to 5. One is the lowest level of performance and five is the highest. Have the employee fill out the same chart as you (or the supervisor) and then compare the ratings to see where there is room for improvement and greater communication.
Have the team fill out anonymous peer reviews on one another. Sometimes a manager isn’t able to see or understand what team members can. This is an opportunity for leadership to gather valuable data on their employees from the perspectives of the people who work with them and have different perspectives. A peer review should be anonymous so that employees feel safe to give honest feedback and impressions.
How can employee performance be improved?
Whether you’re a team leader or an employee yourself, it’s important to assess employee performance and see where there’s room for improvement.
Both the leadership and employees should always know the status of their performance. If performance is suffering, or it’s just time for a boost, implementing best practices for improving the quality and productivity of work can really make a difference.
Here are six ways to improve employee performance.