The New Normal - Tax Increases on Business

As states of all shapes and sizes scramble for more tax revenue, TEC 44 member, Dan Chaudoir, president of Central File Marketing, ran into the long arm of the tax collector in, of all states, Texas. Central File has a one person sales office located in Dallas.

First, Dan learned that because they had an office there the company was required to pay a “franchise fee” of $3500 per year to do business in Texas. And, they wanted two years worth of fees to go away.

Then, the state came after him for sales taxes on all sales shipped to customers in Texas from their production facility in Wisconsin. They didn’t just want two years worth of back taxes to go away this time. They wanted all nine years that the one man Dallas sales office had been in existence. Central File was able to settle for an amount that did not put them on the brink of a negative Z Factor Score. But it was not insignificant.

The point here is, if a “business friendly” state like Texas can become this aggressive with small out-of-state companies like Central File, imagine what the really desperate states will be like. For more on this “heads up” relative to state revenue collectors reaching into the pockets of Wisconsin companies, please contact Dan Chaudoir at dan@centralfileinc.com.

Emotional Job Security

The downturn in the economy left many employees dazed, confused and mistrusting of management. With the economy working its way out of the recession, how can business leaders repair the damage done and rebuild a healthy, productive work environment? In short, how do we address the basic emotional job-security needs of our workers?

Several years ago, when a company I co-owned was dealing with some difficult labor-management issues, our attorney suggested a little book called Discipline or Disaster: Management’s Only Choice. The book outlined four principles that served us well then and apply now at every level of employment.

First, tell your people what is expected of them in terms of job performance. This rule goes well beyond the gobblygook of the classic position description. Force yourself to ask, in clear terms, do my employees know exactly what they are expected to do on the job? Metrics help.

Next, advise your people whether or not their job performance is meeting expectations. This is not the annual performance evaluation. This is direct, personal, regular, face-to-face feedback. While managers tend to avoid these potential confrontations, employees actually welcome the accountability. They want to know where they stand.

Treat all employees fairly and impartially. People know when one person is held accountable and another is given a pass. They also know that something is wrong with the system.

Finally, base your judgments on facts rather than opinions. Metrics help here, as well. But application of the principle still requires management judgment – judgment based on facts, not opinions.

As companies begin to hire once again, your best workers – those who may have been staying in a less than ideal situation out of fear – will have other options. Companies that meet the emotional job-security needs of their people will have a significant competitive advantage.

Where Do Losses Come From?

I hate losing money. I hate it when TEC members lose money. It is even worse when reasonably bright CEOs come up clueless on where the money comes from to absorb such losses. After two years of consecutive losses, I actually had one CEO explain away the problem as “paper losses.” The ensuing conversation went something like this.

TEC Chair: Where do losses come from?

CEO: Well, our expenses exceeded our income.

TEC Chair: Okay, where does the money come from to cover these losses?

CEO: We drew down our line of credit to fund the loss. We also let some payments to our suppliers drag out.

TEC Chair: Do you intend to repay the bank? And, by the way, it would be fraud if you didn’t intend to pay them back.

CEO: Well, of course, we intend to pay the bank back. And, we’ll get our suppliers caught up as soon as we are able.

TEC Chair: So, what you’re telling me is the money that was lost is not coming from the bank or hapless suppliers. They are going to get even. So where does the money come from to pay for losses?

CEO: I guess at the end of the day, it comes from the shareholders of the corporation. You know, shareholder’s equity.

TEC Chair: Who are the shareholders of the company?

CEO: My wife and I own the company.

TEC Chair: So you are telling me the money literally came out of your pocket? Out of your wife’s checking account? Out of your kids’ college education fund? Out of your own retirement account?

CEO: Well, yes, I guess so.

TEC Chair: There is no other source. The money came out of your pocket. And, it is gone - forever. It’s not an investment, unless the loss was caused by significant depreciation charges. The money that paid for the loss is not coming back. Ever. It is forever “lost.”

CEO: I hate losses.

ABOUT Dennis J. Ellmaurer

ABOUT Dennis J. Ellmaurer

Dennis Ellmaurer is a management consultant working primarily as a TEC chairman, leading three CEO mastermind groups in southeastern Wisconsin. In addition to his work with TEC – The Executive Committee, Dennis does executive coaching and is president of Globe National Corporation, an advisory and consulting firm assisting owners of small businesses with Exit Strategies and Succession Planning.

Dennis has over 25 years of management experience. He started his career in business-to-business marketing and sales with a division of the $1.5 billion Reliance Electric Company. He moved to Valuation Research Corporation - an appraisal firm specializing in Mergers and Acquisitions, becoming Vice President of Business Development. In 1982, Dennis became president of a small manufacturing firm with a proprietary product line and strong distribution channel. The company evolved into a marketing and new product development concern. The firm grew aggressively, eventually selling the assets of the business to a division of Mattel Inc.

Dennis majored in Marketing and Finance, earning a Bachelor of Business Administration from the University of Wisconsin – Milwaukee. He is a past Chairman of the Legislative Committee of the Metropolitan Milwaukee Association of Commerce. Dennis serves on the advisory board of Central File, Inc.

Dennis is a member of the Vintage Sports Car Drivers Association and enjoys driving a ‘69 Corvette on sunny weekends. His direct telephone number is 414-271-5780. He may also be contacted through TEC – The Executive Committee at 800-236-9832 or via e-mail at dennis@globenational.com.