Consulting Log of CLM Advisors
January – December, 1843
Client Name: XXXXX (redacted) known only as “E.S.”
E.S. came in for his meeting unusually optimistic about the coming year. He is pleased with some recent sharp reductions in his overhead costs:
- Cut his utility bills in half by using only half of one fire log on the office fireplace for the whole winter, requiring employees to wear their winter coats all day;
- Dismissed two administrative employees on December 25 of last year, reasoning that their salaries could be better used to invest in more real estate ventures.
We counseled E.S. that cutting overhead too sharply could lead to operational failures that would undermine the intended increase to the bottom-line. He seemed unmoved by the comment and determined to move ahead as-is.
E.S. was his usual agitated self this month. Employee absence has been a bit of an issue. E.S. blames it on what people are calling this new “Victorian” generation, with their increasingly liberal ideas and disregard for traditional work ethic. Profits for January were down, and cash flow especially weak as the collections department had the most absences. We suggested instituting somewhat more flexible work hours and employee engagement. E.S. grumbled about it but agreed to consider the idea.
E.S. brought his Operations Manager, “Bob C.”, to the meeting this month. We wanted Bob’s input on employee performance and morale. Discussion centered on two big ideas: better health benefits and the implementation of a profit-sharing plan. E.S. doesn’t like the costs, but Bob was excited. We called in a benefits expert who showed E.S. that, for a relatively small contribution to each employee’s retirement account, he (E.S.) as highest-paid employee would be able to put away significant amounts for his own retirement. He warmed up to the idea.
E.S. hates tax season. He complained bitterly about having to fork over 47 pounds and eight shillings to the Crown, even though we showed him that our tax plan from last December predicted that number almost exactly. He did admit that, yes, at least there are no surprises.
We have been noticing, in E.S.’ factories, a declining trend in Gross Profit Margin from 40% to about 36% and discussed it with him. E.S. certainly doesn’t overpay his people, so that’s not the problem. E.S says he is disappointed that his Operations Manager, Bob C., hasn’t been able to turn it around. We said, maybe it’s finally time to put Bob on a performance-based pay structure that would tie his compensation to overall profits. E.S., who had previously dismissed the idea as “too complicated,” finally agreed to try it.
E.S. is not happy at all about the recent Family Leave law just passed by Parliament. He made some comment to the effect of: “Why should I bear the burden if others cannot manage their own lives?” So angry. But we understand that the new law does create some potential operational and profitability issues, and we talked with E.S. about strategies to mitigate the effects.
E.S. was traveling on business to America all month, so we used the opportunity to meet with Bob C. He brought along their Controller, who confessed that she is terribly overworked and not able to keep up with the books to the required standard. We all agreed that more help is needed in the accounting department – an agenda item for next month, for sure.
The Queen finally made good on her promise to ram a minimum-wage increase through Parliament. E.S. is incensed. “How do they expect merchants to employ the masses at these costs?”, he screamed. We looked hard at our forecast for the remainder of the year and, despite this additional headwind, E.S. was at least pleased to see that the overall business is tracking ahead on both revenues and net profits. We developed a sliding wage scale for E.S. to use to modestly increase salaries across the board, to accommodate the higher minimum.
In the first three months since E.S. implemented the performance-based pay plan for Bob C., the results are even better than expected. Factory profits are above previous levels, and if it continues to track this way, Bob C. will end up earning more money than he ever has. E.S. was his usual self: “He should have been able to achieve the results before all this,” he grumbled, before admitting the new structure “might be working.”
We have been training the new Assistant Controller, who has helped keep the books updated in time for our meetings and has the workpapers information all organized in preparation for year-end. E.S. doesn’t like the additional salary expense, but we explained (again) to E.S. how much time and money this person will save him in the long run.
We presented a tax plan for the end of the year, based on the numbers through October. E.S. is as furious as we’ve ever seen him, because it looks like he will owe more than last year. Even with increased costs and a weaker economy, profits are up. He is so upset about having to give the government “more of my hard-earned money to waste” that he stormed out of the meeting five minutes early (he is usually a stickler for getting his full consulting time, every time). We all agreed his emotional state is getting worse, despite obvious business success.
We don’t know what happened, but E.S. arrived at our office today a changed man. For someone who never smiles, he is as giddy as a child. He brought boxes of cookies and rare tropical fruits for everyone in the office! We tried to review the financial statements, but all he wanted to talk about today are his plans to set up an education foundation to be run by his nephew, and to build 1,000 free housing units for the underprivileged. He asked us to re-work the forecast to include a 15% raise for all employees next year, and he just kept going. It’s extraordinary – something about a dream. Anyway, we have a lot of planning to do in 1844…
We thought we would close the year with a little bit of fun by presenting the kinds of work we do with clients, in the context of a familiar story. As always, it has been an honor and a pleasure to serve all of our clients, large and small, and to provide some good and interesting financial education to our friends, patrons, and followers. Most of all, we wish you a holiday season filled with joy and fellowship. We all spend most of the year striving for “more” in business, but it helps to be reminded, occasionally, to stop and appreciate what we already have. From all of us, Merry Christmas and Happy New Year!