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Small-Business Guide: Figuring Out When It’s Time to Add an Employee

August 28, 2013 by

First, he needs more people in the warmer months. He also has to consider where his jobs are and how long it will take his workers to drive from one job to another. Some jobs take longer than others, because vacuuming and scrubbing take more time than chemical treatments. Plus, he said, “Everyone wants their residential pool service on Friday.”

Of course, like most business owners, Mr. Johnson always wants to avoid having too many people and not enough work.

“Determining when and how many employees to hire is a bit tricky for our business as the demand for services varies based on account growth, seasonality, geography of homeowner addresses and customer requests,” said Mr. Johnson, who started the company four years ago.

Many small-business owners remain skittish about hiring. The National Federation of Independent Business reported that nearly 80 percent of small, private companies made no hiring changes in July and 12 percent let workers go.

Especially after the recession, many owners have been reluctant to spend the money to hire workers, especially if there’s a chance demand will recede and the workers will have to be laid off. The on-again, off-again recovery hasn’t helped. And with small businesses representing 49.2 percent of private sector employment, according to the Small Business Administration, this reluctance has inevitably had an impact on unemployment rates.

Some owners have turned to paying overtime. which makes it easier to scale back if demand slips. The downside is that it can be expensive and it can lead to an overworked staff.

For example, the work force at Narragansett Creamery in Providence, R.I., has grown slowly even as more customers are drawn to the company’s homemade yogurt and cheeses, said Mark Federico, the owner. Started in 2007, the company has grown to a staff of 30.

“We found that if we worked too many hours for too long a period of time, people get burned out,” Mr. Federico said. “People need days off. It’s not scientific, and we’re not right all the time.”

Based on the experiences of owners like Mr. Johnson and Mr. Federico, this small-business guide looks how owners determine when it’s time to hire.

HOURS WORKED Mr. Johnson said he ran his employment numbers weekly, as clients were added and lost, to ensure he had enough people. He uses a spreadsheet to help him decide when the company can support the wages of new employees.

He keeps careful count of the number of pools the company cleans and the hours required for each job. He separates residential jobs, which typically require 30 minutes of time, from those at commercial pools, which can take two hours.

To calculate the required number of employees, Mr. Johnson estimates the number of hours required to clean all client pools and divides that by a standard 40-hour workweek. When the result is greater than the number of employees on staff, he makes a new hire.

PAYROLL AS A PERCENTAGE OF REVENUE Earlier this year, when there was a surge in demand for swimming lessons at SwimLabs, in Highlands Ranch, Colo., Michael Mann was taken by surprise. Suddenly, the 15 full-time employees he keeps during the off-season — as opposed to 25 or more during spring and summer — were not enough.

Opened in 2006, SwimLabs offers one-on-one lessons to children and adults. All students are videotaped and analyzed as they take their strokes in small pools equipped with water jets.

The company saw the same surge in business after the 2012 Summer Olympics.

“The Olympics always elevates the sport,” said Mr. Mann, who holds several masters swimming records. His business got an extra boost because the four-time gold medalist Missy Franklin lived nearby.

To decide how many instructors he needed to hire, Mr. Mann looked at monthly gross earnings and calculated that the payroll should consume a maximum of 25 percent of his operating costs. If he generates an additional $10,000 a month in revenue, he knows he can afford another instructor who is paid $2,500 a month. As a result, Mr. Mann started hunting for two more part-time instructors.

CALL VOLUME Growth can be deceptive. Sometimes, efficiencies may keep three times as many customers from meaning three times as much work. That is a lesson learned by Hudl, a company in Lincoln, Neb., that builds video analysis tools for coaches in 20 different sports, allowing them to break down plays and share them with their players.

The company’s big market is high school football. In the 2011 season, its six-person service team went from working with 2,000 teams to working with more than 6,600. “We were staying up all night” to manage problems such as software bugs, said Bryant Bone, who heads the support team. Clearly, Hudl needed help.

Article source: http://www.nytimes.com/2013/08/29/business/smallbusiness/figuring-out-when-its-time-to-add-an-employee.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Small-Business Guide: Figuring Out What Time Is the Right Time to Start Hiring

August 28, 2013 by

First, he needs more people in the warmer months. He also has to consider where his jobs are and how long it will take his workers to drive from one job to another. Some jobs take longer than others, because vacuuming and scrubbing take more time than chemical treatments. Plus, he said, “Everyone wants their residential pool service on Friday.”

Of course, like most business owners, Mr. Johnson always wants to avoid having too many people and not enough work.

“Determining when and how many employees to hire is a bit tricky for our business as the demand for services varies based on account growth, seasonality, geography of homeowner addresses and customer requests,” said Mr. Johnson, who started the company four years ago.

Many small-business owners remain skittish about hiring. The National Federation of Independent Business reported that nearly 80 percent of small, private companies made no hiring changes in July and 12 percent let workers go.

Especially after the recession, many owners have been reluctant to spend the money to hire workers, especially if there’s a chance demand will recede and the workers will have to be laid off. The on-again, off-again recovery hasn’t helped. And with small businesses representing 49.2 percent of private sector employment, according to the Small Business Administration, this reluctance has inevitably had an impact on unemployment rates.

Some owners have turned to paying overtime, which makes it easier to scale back if demand slips. The downside is that it can be expensive and it can lead to an overworked staff.

For example, the work force at Narragansett Creamery in Providence, R.I., has grown slowly even as more customers are drawn to the company’s homemade yogurt and cheeses, said Mark Federico, the owner. Started in 2007, the company has grown to a staff of 30.

“We found that if we worked too many hours for too long a period of time, people get burned out,” Mr. Federico said. “People need days off. It’s not scientific, and we’re not right all the time.”

Based on the experiences of owners like Mr. Johnson and Mr. Federico, this small-business guide looks how owners determine when it’s time to hire.

HOURS WORKED Mr. Johnson said he ran his employment numbers weekly, as clients were added and lost, to ensure he had enough people. He uses a spreadsheet to help him decide when the company can support the wages of new employees.

He keeps careful count of the number of pools the company cleans and the hours required for each job. He separates residential jobs, which typically require 30 minutes of time, from those at commercial pools, which can take two hours.

To calculate the required number of employees, Mr. Johnson estimates the number of hours required to clean all client pools and divides that by a standard 40-hour workweek. When the result is greater than the number of employees on staff, he makes a new hire.

THE PAYROLL PERCENTAGE Earlier this year, when there was a surge in demand for swimming lessons at SwimLabs, in Highlands Ranch, Colo., Michael Mann was taken by surprise. Suddenly, the 15 full-time employees he keeps during the off-season — as opposed to 25 or more during spring and summer — were not enough.

Opened in 2006, SwimLabs offers one-on-one lessons to children and adults. All students are videotaped and analyzed as they take their strokes in small pools equipped with water jets.

The company saw the same surge in business after the 2012 Summer Olympics.

“The Olympics always elevates the sport,” said Mr. Mann, who holds several masters swimming records. His business got an extra boost because the four-time gold medalist Missy Franklin lived nearby.

To decide how many instructors he needed to hire, Mr. Mann looked at monthly gross earnings and calculated that the payroll should consume a maximum of 25 percent of his operating costs. If he generates an additional $10,000 a month in revenue, he knows he can afford another instructor who is paid $2,500 a month. As a result, Mr. Mann started hunting for two more part-time instructors.

CALL VOLUME Growth can be deceptive. Sometimes, efficiencies may keep three times as many customers from meaning three times as much work. That is a lesson learned by Hudl, a company in Lincoln, Neb., that builds video analysis tools for coaches in 20 different sports, allowing them to break down plays and share them with their players.

The company’s big market is high school football. In the 2011 season, its six-person service team went from working with 2,000 teams to working with more than 6,600. “We were staying up all night” to manage problems like software bugs, said Bryant Bone, who heads the support team. Clearly, Hudl needed help.

Article source: http://www.nytimes.com/2013/08/29/business/smallbusiness/figuring-out-when-its-time-to-add-an-employee.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Fair Game: At PennyMac, Dueling Jobs and Big Paydays

May 18, 2013 by Leave a Comment

But while shareholders have been banking these returns, Stanford L. Kurland, PennyMac’s C.E.O. and chairman, has reaped even greater riches from the REIT. He has done so through a couple of private companies: a mortgage servicing unit and an investment adviser that externally manages the REIT. These companies are units of PennyMac Financial Services, which not only earns lucrative fees from the REIT but also uses the REIT to generate business opportunities that it keeps for itself, financial statements show. Mr. Kurland owns 23 percent of the financial services company.

In other words, PennyMac Financial Services, of which Mr. Kurland is also C.E.O., is generating significant profits from a REIT on whose board he serves and to whose shareholders he owes a fiduciary duty.

“We recognize that conflict has the potential to arise in our businesses,” Mr. Kurland said in a statement. “However, each and every related-party transaction is reviewed by the related-party committee of each independent board and is subject to securities disclosure rules for related party transactions.”

First, a little history. Mr. Kurland enjoyed a long and prosperous career at Countrywide Financial, joining the company in 1979, just 10 years after Angelo R. Mozilo and David Loeb founded it. From 2004 through most of 2006, Mr. Kurland was president of Countrywide as it churned out some of the stinkiest loans ever created.

Mr. Kurland’s second act began in 2008, during the height of the financial crisis, when he founded the PennyMac REIT. He received financing from BlackRock, the money management giant, and Highbridge Capital. Since its public stock offering in 2009, PennyMac has raised $1.13 billion in equity.

While he was organizing the REIT, Mr. Kurland was also establishing a separate loan servicing company and investment adviser to provide it with management services. Rather than folding these companies into the REIT, he owned them with BlackRock and Highfields Capital, an investment firm in Boston.

Externally managed REITs, like PennyMac, are unusual today because they create the potential for conflicts if the same people run both entities. (Another such REIT, CommonWealth, was featured in this column two weeks ago.)

IT was unclear until recently how lucrative the relationship with the PennyMac REIT was for Mr. Kurland’s side companies. But an I.P.O. statement filed earlier this year by PennyMac Financial Services, the previously private company that contains the REIT’s investment adviser, lifts the curtain on the arrangement.

PennyMac REIT, the document says, paid Financial Services and its subsidiaries $96.7 million in fees last year, up from $8.5 million in 2010 and $23.4 million in 2011. That’s an 11-fold increase in just two years. In 2012 alone, the REIT accounted for more than one-third of Financial Services’ net revenue.

As for the potential conflicts, the PennyMac Financial Services offering statement notes that Mr. Kurland and others in the upper echelons of the company “may have conflicts in allocating their time and services between our operations” and those of the REIT.

In addition, the public filing states that the overlapping objectives of the REIT and the financial services company could present problems. PennyMac Financial Services might participate in some of the REIT’s investments, the document notes, without negotiating at arm’s length. This could result in potential conflicts, the filing adds, “between our interests in the investments” and those of the REIT.

An example: PennyMac Financial Services buys most of its mortgage loans from the REIT at its cost plus 0.03 percent. Then it sells them at a profit, with any luck. Last year, the financial services company generated $118 million on loans it had sold. To the degree that these gains were on loans that originated at the REIT, those were profits that the REIT could have received.

These possible conflicts were described differently for the REIT’s shareholders in a February investor presentation. There, the PennyMac REIT characterized its relationship with Financial Services as “synergistic.”

It’s hard to quantify what these potential conflicts might cost the REIT’s shareholders. But one way to look at the situation is to compare the overall returns at PennyMac Financial Services with those of the REIT.

Consider return on equity at both companies. In the first quarter of this year, that figure was roughly 78 percent at the financial services concern. At the REIT, it was 18 percent. For all of 2012, returns on equity were 67 percent at PennyMac Financial Services, versus 16 percent at the REIT.

On May 8, PennyMac Financial Services went public at $18 a share. Some 11 million shares were offered for sale, bringing the total shares outstanding to 74.2 million. After the offering, Mr. Kurland owned 23 percent, BlackRock owned 29 percent and Highfields 27 percent.

The stock closed on Friday at $20 a share, giving PennyMac Financial Services a market value of $1.48 billion. That values Mr. Kurland’s stake at $341 million.

By contrast, over at the REIT, Mr. Kurland owns approximately 335,000 shares, or about half of 1 percent of its stock outstanding.

Given this ownership imbalance, which company do you think will get more of Mr. Kurland’s attention?

His dueling jobs at the PennyMac entities also mean different paychecks for him. For his work at the REIT last year, Mr. Kurland was paid $1.87 million in stock. At PennyMac Financial Services, however, he received $2.634 million in total 2012 compensation.

So far, shareholders of the PennyMac REIT don’t seem perturbed by the potential conflicts in Mr. Kurland’s roles. And Mr. Kurland said that the companies have “disclosed potential areas of conflict to investors and put in place practices and structures that address them if they arise.” 

To eliminate any perception of conflict, Mr. Kurland could have rolled up the ancillary companies into the REIT itself. But that was not done.

As such, Mr. Kurland’s returns on his investment are far higher than those generated by the PennyMac REIT shareholders. According to financial statements, during 2009 and 2010, Mr. Kurland, BlackRock and Highfields contributed $97 million of capital into the company that became PennyMac Financial Services. Thanks to the new stock issue, that investment has grown to $1.2 billion, a more than 12-fold return.

For shareholders in the REIT, by contrast, their total return of 32 percent since the I.P.O. has been a good gain. But it’s certainly not the jackpot that Mr. Kurland has just hit.

Article source: http://www.nytimes.com/2013/05/19/business/at-pennymac-dueling-jobs-and-big-paydays.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

You’re the Boss: Would you consider SecondMarket to Finance Your Business?

September 29, 2011 by Leave a Comment

Today’s Question

What small-business owners think.

In his column today, Andrew Ross Sorkin writes about how SecondMarket is serving as something of an eBay for shares of private companies.

Mr Sorkin explains what Barry Silbert, chief executive, had in mind when he started SecondMarket:

Mr. Silbert, who looks even younger than his 35 years, set out in 2004 to create a market for secondary shares, allowing private companies that are often too small to go public to have their employees and investors sell their shares on an exchange.

His exchange allows for certain rules that the public market does not: a company selling shares on SecondMarket can choose which investors are allowed to buy — weeding out fast-buck artists — and how frequently they can trade those shares. If a company wants to allow investors to trade their shares only twice a year on specific dates, that’s fine.

The benefits are obvious: employees and investors can cash out some of their stakes without having to go through the formal and rigorous process of an initial public offering. That, in turn, can allow traditionally cash-poor pre-I.P.O. employees, for example, to afford to stay at an emerging company that might not be ready to pursue an I.P.O. until it matures some more.

Would you consider using SecondMarket to finance your company?

Article source: http://feeds.nytimes.com/click.phdo?i=4b2298062f1b4ece5ee3c10c9ce0a74a

Filed Under: Small Business Tagged With: , ,