Quick Tip of the Day- Having Efficient vs Inefficient Employees

When I walk into a business one of the issues I see time and time again is inefficiency. Inefficient systems in place cost company's billions of dollars each year. In this economy who can afford to waste money? I am a firm believer in implementing policies and procedures and developing a strong and solid team. This will not only save you time but will save you money as well.

One of the worst cases of inefficiencies I have observed is when an employer is paying two or three employees to do the job that only one employee is needed for.  For example, a company could have three or four administrative employees when only one (or two at most) is needed.  The same problem occurs with having inefficient employees.  If you don't manage your employees properly who will?  Some employees excel with minimal directive from management, but other employees will skate by undetected without proper management guidance .  Many new business owners face this problem when buying an existing company.  They soon realize that some of the employees they inherited may be hindering the company instead of helping it.  The key is to get rid of these bad eggs as soon as possible. 

Many of you may wonder why an employer would keep an inefficient employee around at all.  Unfortunately, I have seen this happen time and time again with employees that have been with the company for several years.  Employers feel that there is nothing they can do about these kind of employees since the behavior has gone on for so long.  I, myself have inherited one or two bad apples in my day(from other departments within the company).  I have always given the employee a chance to change their ways.  If they can't do that then they have to go.  These employees are often severely overpaid (since they have been with the company for so long) and they need to understand that, under my management, they need to step up they're game.  When I am managing a company or a department within a company I believe in developing a strong team to work under me.  I also believe in giving employees all the tools they need to be successful within the company.  I try and work with poor employees to the best of my ability.  If, after all of this, the employee is still  falling short there is really nothing more to do besides letting them go.  I have been in this situation time and time again.  It is hard letting people go especially those that have been with the company for a long time (although it's easier when the issue is poor attitude and not poor work ethic).  You just have to remember, you are only as strong as your weakest link.

My advise is to develop job descriptions for each and every employee.  That eliminates a lot of the excuses that arise from an employee claiming they weren't responsible or didn't realize they were responsible for a certain aspect of their job.  If the employee's position changes immediately amend the job description.  If you are an employer who does not have job descriptions in place, ask your employees to write their own job descriptions up.  This can not only save you time but you can also see what employees believe their day-to-day responsibilities are.

What Should You Depreciate?

One of the most common questions I am asked has to do with fixed assets and depreciation.  A great example came from a client I was working with a couple months ago.   This client had recently purchased a small business and in doing so had purchased several new items such as: a new computer, new software, a new printer, and a new desk chair. The question that my client asked me was this: "Which of these items CAN/SHOULD I depreciate?" He then told me that he wanted to depreciate as many of the items as possible using the most accelerated depreciation method possible to save the most money as soon as possible.

Like many new business owners, he assumed that depreciating as many items as possible would save him money. This is not 100% true. The reason for depreciating items is to write off the "depreciated"or "used up" amount of that asset each year. The lifetime of a fixed asset varies depending on what type of asset it is.  In order to depreciate an asset it has to have a "service life" of greater than one year.  There is another factor that should be considered when depreciating assets- and that is the purchase cost of the asset. Every company should have a fixed asset threshold that determines which assets are expensed and which items are not.

In this particular situation every item that my client had purchased had a service life of longer than one year so he assumed that everything should be depreciated.    The items ranged in value from $75-$400.  I told my client that we needed to come up with a threshold to base which assets would be depreciated and which items would be expensed.   We decided on a threshold of $250.  I then proceeded to transfer the items under $250 (software, printer, and chair) from the asset account "Office Equipment" into the expense account "Office Equipment Expense".  This worried my client since he thought he would save more money depreciating everything.  The truth is, the more you can expense the more you save.  The reason is simple.  Lets say the software, printer, and chair totaled $500 .  If he had used the straight-line depreciation method for these assets  ( with a useful life of five years and a salvage value of zero) he would have been able to write off $100 that first year ($100/year for five years).  If he expensed the items he would be able to write off the entire $500 that first year.  Once my client understood the difference between expensing items and depreciating them he was more than happy to expense those items under $250.

The lesson here is simple: 

1. You should ONLY depreciate what you have to; and

2. When in doubt ALWAYS ask a professional.  When it comes to tax write-offs you want to be really careful and always double check with a professional.

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