Regardless of the nature of the business, most troubled companies can trace their problems to one or more of six common management mistakes.

  1. Failure to review and revise sales forecasts.

When a company has a recent history of consistent yearly sales improvement, it is often assumed that uninterrupted growth will continue.  But when overly optimistic sales projections aren=t met operating results suffer.

The solutions.  Look at orders from major accounts.  If they’re down, find out why.  Compare the previous year’s projections to actual results and ask what should be done to avoid similar mistakes in current forecasts.  In addition to comparing dollar sales to previous years, compare unit sales and the quality of orders received as well.

  1. Inattention to financial reports.

When business drops off, owners tend to direct their attention to sales and marketing.  This often involves increased traveling, with more visits to sales representatives and customers in an attempt to bring in more business.  As a result, key financial reports are put on the back burner and left there to simmer.  Profit projections and cash flow forecasts aren=t reviewed as diligently as they should be.  Slowly but surely, the company begins to slide into financial trouble.

The solution.  Designate key people to review all financial reports and to bring warning signals to management as soon as they appear.

  1. Weak purchasing controls.

If too many employees are authorized to make purchases and business softens, a company can be faced with increased costs and reduced margins.

The solution.  Purchasing systems and controls should be fine-tuned when business is good.  Regular vendor reviews and price checks should be a routine part of the purchasing function.  Buying authority should be delegated to as few people as possible.  Regularly purchased, low-ticket items should be reviewed by purchasing personnel for possible automatic periodic shipments at lower prices.

  1. Failure to modify product lines.

Too often, companies continue to offer certain products so they can claim a [email protected] product line, even though sales are negligible and margins unacceptable for those products.  The result is higher hidden costs which can severely damage the total profit picture.

The solution.  Schedule quarterly line reviews.  Make tough decisions about what the company sells.  Analyze the real cost of carrying slow-moving items.  Don=t hesitate to weed out unprofitable products.


  1. Doing business as usual.

Be flexible and be prepared to move quickly.  For example, just because it’s always been your policy to consider increasing prices once a year doesn’t=t mean that=s the best policy for today=s business conditions.

The solution.  Keep an eye on costs.  If they are increasing beyond expectations, take a hard look at market conditions and consider raising prices if sales will not be materially damaged.

  1. Failure to motivate good managers to stay with the company.

When the business climate worsens and key employees find it more and more difficult to produce good results, they frequently exert extra pressure on other employees.  Raises and bonuses are cut back, or even eliminated, as the company=s performance weakens.  Faced with such conditions, the best employees will invariably begin to look around for better opportunities.

The solution.  Even when it appears that the company can’t afford it, it may be desirable to offer performance incentives and even increased compensation.  A short-term alternative that can boost morale is to give key personnel greater recognition and more responsibilities.


Before you hire more full-time workers, consider hiring part-time employees at “peak time” wages.  It’s an alternative that can save you money and actually increase productivity.  The key to this strategy is to determine exactly when you need more employees.  Then pay part-timers a premium to work just during those hours.

For example, your shipping department may appear understaffed, but when you look into the situation, you discover that there’s a flood of outgoing orders on Friday.  Instead of hiring more full-time shippers at $14.00 an hour, hire part-timers at higher wages – perhaps $16.00 an hour – but just to work on Friday.  The premium peak time wage will attract better workers than you could get for $14.00 an hour and you won’t have to pay for many of the benefits that full time employees get.

There are other advantages to peak time pay.  Some companies that use it have been able to reduce the number of full-time employees because many workers decide to switch to part-time at peak time wages.  In addition, you’ll be able to develop a pool of part-time workers who you can call on when you need them.  And part-timers who usually job hop won’t do so because peak time wages are attractively high.  You might lower certain overhead costs, too.

For peak time pay to work, it’s essential to make a detailed analysis of when peak workload periods actually occur.


Learn to listen.  The only way you can overcome a prospect’s objections is to listen carefully so you really understand the prospect’s concerns.  Don’t try to anticipate an objection until you actually hear it.

Discover the real problem.  You might hear a number of objections, but your prospect might be reluctant to bring up the real problem, such as a clash he’s having with his boss.  If you’ve answered a series of objections and still haven’t made the sale, it’s time to ask the prospect if there’s a problem that’s keeping him from giving you an order.

Verify the problem.  If a prospect says your price is too high, ask him if he will give you an order at a lower price.   If his answer is “yes”, you’re on your way to closing the sale.  Any other response means that price is not the real problem and you’ll have to probe further.

Always ask questions.  Don’t try to overcome an objection unless you’re certain you understand it.  If, for example, you’re selling office equipment, a cost objection could mean your selling price, or the cost of set-up, or the cost of user training.  You’ll never know unless you ask.

Double-check your answers.  To be sure you’ve answered an objection, ask the prospect, “Does that solve the problem ?”

Focus on benefits.  For example, if a prospect objects to the cost of your product, point out the high value of the product in relation to its cost.


Incentives to motivate employees have been around for a long time, but few offer the flexibility and potential of what is commonly referred to as “gainsharing”.  Gainsharing is a program that rewards a company’s workers for increased production, improved quality, cost reductions, and other achievements through the payment of regular cash bonuses.  Properly conceived and implemented, a successful gainsharing program can produce significant benefits for a company.

Typically, an effective gainsharing program can increase productivity by as much as 15%.  Equally important, gainsharing establishes a direct relationship between a company’s performance and what it pays its employees.  When business is soft, bonuses are reduced or even eliminated, but when conditions are good, the work force shares in the company’s gains.

How it works

The first requirement for a successful gainsharing program is that it establishes easy-to-understand performance standards for particular work tasks.  These performance standards determine whether employees in a specific job earn a cash bonus.  Gainsharing bonuses are usually paid monthly because employee motivation is strongest when employees receive their bonuses as soon as possible after they’ve achieve their performance goals.  To draw attention to the unique nature of a gainsharing bonus, it’s usually paid separately from the payroll check.

It’s these two aspects of gainsharing – frequent payments and a direct link to job performance – that make a gainsharing plan different from a profit-sharing plan.  In most profit-sharing plans, workers don’t receive benefits until retirement, and the company’s annual contribution to a profit-sharing plan is often taken for granted as an automatic donation rather than a personal reward for good work.

Setting performance standards

The formula used to determine a gainsharing bonus must be acceptable and equitable to both the company and its employees.  The best way to achieve this is to base the formula on a reporting system that has proven itself to be reliable.  Two major standards must be set:

  1. The size of the bonus, which can be established in several ways – for example, the ratio of labor costs to sales.
  1. Justification of the bonus as a true reflection of the company’s improved performance – for example, production units per hour.

Bonus performance standards should be based on the company’s reasons for adopting a gainsharing plan.  Typical standards involve ratios between various factors such as production value, cost of quality, units of output, labor hours, and cost of goods.  Improvements in any of these areas should be measurably beneficial to the company’s performance.

It’s important not to build too many standards into a plan because a plan must be easy to understand so that employees will respond to it.  Standards must be chosen carefully so that bonuses are paid only if the company benefits financially when its employees meet the standards.

Getting the most out of gainsharing

  • Gainsharing works best in companies that have fewer than 100 employees. Although it can also work in larger companies, gainsharing is more difficult to administer and implement in larger companies.
  • A gainsharing plan is more effective if it begins at a time of the year when a company is traditionally busy. This permits employees to achieve results and earn gainsharing bonuses right at the beginning of the plan.
  • Gainsharing will work best in a free-standing facility where the production mix is not too broad.
  • Management should design a gainsharing program so that while both the company and its employees benefit, higher productivity does not result in layoffs.
  • Gainsharing plans should not be used in companies where employee relations are poor, where operations are highly automatic, where departments work independently of one another, or where certain workers in a particular department won’t be included in the program.


  • Better decisions: First, try to find the ideal solution to a problem.  Since there is never a perfect solution, you’ll always have to seek compromises, but if you first determine what’s the absolute best for your company, you’ll find that your decisions about compromises will be much easier.
  • Sure road to failure: Try to please everyone.
  • Mark of leadership: Accept the fact that tough decisions may be unpopular.  And that long periods of time may elapse before your efforts are rewarded.


Leasing a home can be an attractive alternative to buying in today’s weak real estate market.  Leasing with an option to buy is an increasingly popular way to acquire a home.

Whether the real estate market is strong or weak, the basic principles of lease negotiation remain the same.

  • Set your priorities.  Before you begin to negotiate, decide what is important to you.  It might be a new refrigerator, interior painting, or a lower rent.  Remember, everything is negotiable.
  • Show that you are a desirable tenant.  When a landlord feels that you will take good care of the property, you will be able to negotiate a better deal.  Explain what you want in return for the fact that you are a responsible tenant.
  • Do not sign a lease until all negotiations are over.  Landlords are far less likely to agree to changes after a lease is signed.
  • Do not eliminate the possibility of compromise.  When you tell a landlord that you will not lease a property unless you get what you want, you effectively end the negotiations.  Remember that half a loaf is better than nothing.


Hidden dangers in home equity loans

 Home equity loans may not be as attractive as they seem.  In the long run, they can sometimes be more costly than conventional types of loans.  Contributors to high home equity loan costs: excessive closing costs, variable interest rates without protective caps, high “point” charges, long payback periods, and large lump sum balloon payments at the end of the payback period.  Suggestion:  compare total costs between home equity loans and conventional loans before you borrow.


Hidden dangers in home equity loans

 Home equity loans may not be as attractive as they seem.  In the long run, they can sometimes be more costly than conventional types of loans.  Contributors to high home equity loan costs: excessive closing costs, variable interest rates without protective caps, high “point” charges, long payback periods, and large lump sum balloon payments at the end of the payback period.  Suggestion:  compare total costs between home equity loans and conventional loans before you borrow.



  • Don’t set impossible quotas. Many managers automatically increase individual sales quotas every year so that sales people have to book more business before they can earn incentive income.  This is a common approach to keeping costs down, but it can have an adverse effect on sales because salespeople become discouraged by quotas which are impossible to reach and may leave the company for greener pastures.  If selling costs are a real problem, it’s usually a better strategy to keep sales quotas realistic and offer lower commissions instead.
  • Don’t limit income potential. Putting a ceiling on total sales commissions and bonuses tells salespeople that once they’ve reached the limit, there’s no reason for them to continue to work for additional sales.
  • Don’t waste sales ability. Good salespeople need new challenges.  Selling the same customers over an extended period may make it easier to reach their quotas, but they soon realize that increasing their sales (and their income) is becoming more and more difficult.  It’s much better to reassign territories to provide new opportunities for salespeople to improve their income.


When companies go through cost-cutting periods, they often focus all their attention on profitability and tend to ignore employee morale.  In the face of cutbacks – which sometimes include layoffs – employee productivity suffers.  Without employee understanding and cooperation, sales and profits may fall more rapidly than costs.  Here’s a checklist to follow to keep worker morale high.

  • Show employees the benefits they’ll get.  If a little belt-tightening now means better job security later, make sure employees know it.
  • Explain why cutbacks are necessary.  When employees understand why cost-cutting is needed, they are much more likely to support cutbacks.
  • Ask for employee cost-reduction ideas.  When employees are actively involved in the decision-making process, they are more likely to understand and accept changes.
  • Tell employees when the plan is working.  Solid evidence that cost-cutting efforts are paying off will motivate continued worker cooperation.
  • Practice what you preach.  Be prepared to give up management perks and other privileges.