Show Yourself the Money

The rub? In creating this so-called leverage, even the best employees need to be managed: trained, supervised, evaluated, monitored, directed, compensated, promoted, motivated, mentored and, often, befriended. They’re going to have personal issues that someone is going to have to deal with. They’re going to create office issues that someone is going to have to deal with. They’re going to have employee/employer issues that will need to be dealt with. If all this sounds like it takes a lot of time, that’s because it does. (In fact, most of my time is spent dealing with the employees of my advisor/clients because they don’t have the time, or the expertise, to do it themselves.)

[Read about what happens when you pay too much.]

The bottom line is that when calculating the benefits of staff leverage, few advisors or their consultants factor in the additional time involved in managing those employees to determine how much time those employees really “save” an advisor. In larger advisory firms, with office managers, and often, human resources professionals, the time involved in “managing” each employee can be minimized, which can create greater potential leveraging. But in smaller practices, where any managing that gets done is performed by the one or two owner/advisors, tangible benefits of staff leveraging can be hard to create.

Picking the Wrong People, for the Wrong Reasons

It doesn’t help that advisors, who generally don’t have much hiring experience, tend to hire the wrong people, further decreasing the potential for true leveraging. All this isn’t to say that advisors in small practices can’t get the benefits of staff leveraging. They can, but only if they hire the right people, for the right jobs, and set up a management system to minimize the amount of the advisor’s time that each employee will take.

Making the “people cost” problem even greater, many advisors tend to hire people for the wrong reasons. In addition to psychological reasons such as really enjoying mentoring or teaching, or larger firms making them feel more successful, independent advisors often try to solve the chaos that their firm has become by hiring more “help.” This generally has about the same effect as throwing water on a grease fire: it only makes things worse. Without the structures in place to make every employee productive and successful, more “help” is only going to lead to more headaches.

So before you start spending your hard-earned revenues on more employees, take a step back. Employees are going to be your more expensive overhead item, and the most time consuming (yes, burning up even more of your time than technology, which is fast becoming the No. 2 time soak). Consequently, adding employees should be the last “solution” you should attempt, after you’ve explored and exhausted all other potential solutions to your current problems: better time management, real systems and procedures for all client services, better management of your current employees and a realistic business plan.

Once you have your current firm under better control, you’ll also have a better idea of where you want to go, and exactly what type of employees (if any), and how many of them, you’ll need to get there. With a plan like that, you’ll be able to manage your employee costs much more effectively: both with the new folks you hire, and also with your existing employees–because you’ll have a far better idea of how much they are worth to you, and how much they are worth in the job marketplace.

After all, in small businesses like independent advisory firms, the cost and management of employees are often the keys to the financial viability of the firm, and well as the happiness of the owner/advisor. The owner’s happiness is, by the way, usually essential to the firm’s success.