Wednesday, September 9, 2009

Small Firms Impacted More by Bad Decisions

Poor management decisions impact firms of all sizes, but the smaller the company the greater the impact. A couple of examples come to mind.

Creating jobs for family members, both immediate as well as extended members, can create havoc with profitability, especially in smaller firms. It is one thing to have an unproductive uncle, neice or nephew working in a$1.4 million dollar firm when there are nine or ten other employees to cover up for low productivity, but change the numbers down to a $400,000 firm where there should only be three or four employees to begin with and discover that one of those four (the son, the daughter, neice, etc.) is simply lacking in basic skills you have the ingredients for a disaster on your hands.

Same thing with partnerships. Small businesses are simply not structured to support two equal owners. It is almost impossible for small companies to compensate two owners at the levels they perceive they are entitled to, without once again draining precious dollars from the bottom line.

Small businesses simply can't justify two highly paid owners wearing their management hats trying to supervise the two or three remaining employees. Even in cases where both "partners" work and work "really hard," the work they perform rarely justifies the salaries they expect.

One of the many problems with compensating partners and other family members is that they expect (far more than traditional employees)to be compensated at levels they need to support their families, rather than at levels warranted by the work they perform.

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