Profitmaker: Oh, Grow Up.

by William Ronat
November 1996

If your video business is growing, it's healthy. But prepare yourself for some growing pains.

A friend of mine (who owns a video business) is tired. This is a good thing, in some ways. His fatigue is due to overwork, which translates to having lots of business, which, as we all know, means that he gets to make enough money to stay in business.

My friend, as you may have guessed, runs a one-man shop. He is the shooter and the editor and the director and the one who creates the invoices. His wife keeps the books when she can, but she works full time at a corporation and so he mostly flies solo.

There have been occasions in the last few months when my friend has ended his day sleeping on the couch in his edit suite. He would do this after an edit session went long into the wee hours, to get a little rest before an early morning shoot the next day. Why not call in sick, you ask? Those of you with your own one-person business know the answer. Nobody is going to pick up the slack, because there is nobody else.

My friend has always wanted to be successful in the video business. He creates good product, keeps his equipment in excellent order and takes the work seriously. Now he has as much (or maybe more) work than he can handle. He has, in fact, realized his dream. But, as the saying goes, be careful what you wish for, because you might just get it.

Can success be a bad thing? It can if you can't keep up with it. As you land new clients, your time (which is finite) is divided into smaller and smaller pieces. To take care of the new clients, all your work may start to suffer. There are only so many hours in a day (and--if you don't need sleep--in a night).

If you can't get all your work done before the assigned deadlines, then the stress can start to get to you. You might start to make mistakes. Quality could take a nose-dive, established clients could become disgruntled and look for a new supplier. Your business could be in trouble.

Or you could be in the situation where you have plenty of work and you get it all done easily. In fact, you find everything about running a business to be child's play. The profits just keep piling up. You might as well take advantage of your natural entrepreneurial skills and open a branch office across town, right? Well, maybe. But there is a lot more to growth than just getting bigger.

Help Wanted
My friend has been thinking of hiring someone to help him out. Adding one employee is the simplest kind of growth. Expanding your business by adding another location is a complex kind of growth. But any kind of growth in a business is a critical decision and means paperwork, time and expense.

It would seem that adding an employee would make your life easier by taking some of the load off of your shoulders. But instead, this type of growth can actually give you more to do than ever. Why? Because you have to find things for an employee to do, you have to supervise him/her, you have lots of paperwork to fill out, etc. Kinda crazy, huh?

Remember when you first decided to start your video business? You thought about it for a long time, balancing the advantages of being your own boss against being an employee and the steady paycheck that goes with it. You weighed the risks against the potential rewards. In the end, you made the leap of faith and with luck and skill you have created a successful enterprise. Now you have to think just as hard before you attempt to grow. Consider this:

When you began your business, it probably took a while before the money started to flow regularly. Some months were downright slow. It might have taken a year or more before you became profitable. If you expand, you should be aware that this process will more than likely be repeated with a lot of time passing before the lean times go away again.

Mouths to Feed
When you were by yourself, you could tighten your belt and avoid taking money out of the business when the money wasn't flowing. But when you have employees, these people have a nasty habit of expecting a paycheck on a regular basis-- whether the business is profitable or not.

Expanding your business means investing--both time and money. Not only do you have to meet payroll, but your employee needs a place to sit (like a desk), a telephone to use, maybe a computer, a file cabinet, paper, files, paper clips, a stapler and on and on. These costs will come from your profits or you will have to borrow it. It takes money to make money. You'll invest time during the training process to make sure your employee learns how to do your jobs your way.

Have you been a manager before? It is unlikely that you will be able to hire a person who knows everything that you do and has the same amount of self-motivation. After all, the employee is working for wages. He or she won't have the same incentive that you do to work hard. Which means that you have to be able to motivate them to work hard and work well.

Curve Ball
At first you may be in the situation where you will show the employee how to do a task, leave him to do it and then possibly have to do it over (or wait for him to do it over) when he does it wrong. With luck, the employee will get past this phase (called the learning curve) and start to generate income. But not always. The employee may never learn the video business. Then you have to fire him. Are you capable of this difficult task? Be aware that for most bosses the process of firing someone is almost as stressful on the boss as it is on the person being fired.

The Job Ain't Over . . .
How are you with paperwork? Do you find yourself coming in on weekends to catch up with writing invoices and bill paying? Then be aware that your paperwork will increase dramatically if you hire an employee. You'll need separate payroll records for each employee, you'll withhold federal income and Social Security taxes, withhold state taxes (if such taxes are applicable in your state), prepare quarterly and year-end payroll tax returns, and pay the employer's portion of Social Security, FUTA (don't ask) and unemployment taxes.

But the fun doesn't stop there. You may have to purchase workers' compensation insurance, and you'll definitely have to fill out and send to the IRS year-end earnings statements for each of your people. What does all this extra work and tax actually cost? A rough estimate is an additional 30% on top of your payroll. So if you pay someone $7 an hour, it's really costing you $9 an hour or more when you figure in the care and feeding of the government and assorted paperwork.

What's the Temp?
There are a couple of ways that you can get some help without becoming an employer, but be careful. You don't get to decide whether you are an employer or not – the Internal Revenue Service does. We'll look at that interesting can of worms in a little while.

One of the simplest ways to increase your manpower is to go through a temporary agency such as Norrell or Kelly or ADIA. Look in the Yellow Pages under employment agencies. You can contact a representative and tell them what kind of a person you require. The agency will check through their database and find the best candidate. You may be able to interview the prospective temp and decide if he/she will work out, or the agency may send the person over for a trial run. In either case, if that temp doesn't pass muster, he/she can be replaced. And that's the agency's job.

The agency will have an hourly fee set for the type of worker that you are looking for (a sliding scale based on skill levels), and the agency takes a percentage of the wage you pay as its fee. The agency sends you a bill and you pay it. The agency then takes care of all the paperwork, handles insurance and pays the temp directly. No muss, no fuss.

You will probably pay about 20% more for your worker than you would if they worked for you directly, but this price may be worthwhile to avoid learning all the rules of becoming an employer. (Did I mention that you have to apply for a Federal Identification Number in order to be an employer? Isn't business fun?)

You may be thinking, "Well, I don't have to pay extra to go through a temp agency. I'll just give some kid a couple of bucks to come and help me schlep equipment around. That'll be cheaper." To which I say, "Ha!" You've just hired an employee, whether you know it or not.

An Employee Is An Employee Is An Employee
Here's what the Internal Revenue Service has to say: "Anyone who performs services that can be controlled by an employer (what will be done and how and when it will be done) is an employee. This is so even when the employer gives the employee freedom of action, if the employer has the legal right to control the method and result of the services. Employers usually provide the tools and place to work and have the right to fire an employee."

And the IRS doesn't give a hoot what you call a person working for you, they are still an employee. According to the IRS, "If an employer-employee relationship exists, it does not matter what it is called. The employee may be called a partner, agent or independent contractor. It also does not matter how payments are measured or paid, what they are called or whether the employee works full or part time." If you have someone do work for you who really is an independent contractor, then you have nothing to worry about. Who is an independent contractor? People who are in business for themselves. These folks usually have an office, a business license with the city and county and possibly their own Federal I.D. number. You give them a task and let them take it away and accomplish it. Then they send you a bill for the services.

You're the Boss
Against all reason, you have decided if you really want to hire an employee. One succinct piece of advice about the process: HIRE SLOW, FIRE FAST.

You're going to invest your time in the hiring process and training. Your employee will reflect on you and your business. A good employee helps grow your business--a poor employee annoys clients, hurts quality and reflects on you in another way. Fire fast. Holding on to a bad employee escalates the damage.

You want the best help you can find, and this means doing your homework. Talk to your friends in the video business. Have they run into any good candidates or have they been sent any promising resumes? Maybe you have been working with an independent contractor who doesn't like being in business for himself, or maybe he knows some qualified video people who are looking for a steady job. Some cities have video or film trade publications in which you can place a help-wanted ad. If the position you want to fill is unskilled, you could put an ad in the newspaper, but you may spend a lot of time on the responses.

Make up a form for the applicant to fill out. You can find sample forms in most "how-to-run-a- business" books. Make sure the form asks for information such as where the applicant has worked in the past, and get references. Be aware that there are many questions that you cannot ask because they are considered discriminatory. Contact your state's Department of Fair Employment to find out more on this subject.

Choose a few applicants that look right for the job and set up interviews. You can find out a lot about a person when you talk to them. Sometimes how a person answers a question is more important than the answer itself. If the applicant seems bored during the interview, or is more interested in how much the job pays than what the duties are, he or she may not be right for you.

Even if you think you have found the perfect candidate for your job, you should still do follow-up work. Call the references listed on the applicant's form and find out how former employers feel about your prospective new hire.

Get to Work
Once you feel comfortable that you've found the right person and have hired them, you're ready to embark on a strange new voyage of discovery.

Have you thought about this phenomenon? Every morning when you come into work, your new employee will want to know what he is suppose to do that day. If you say, "I don't know, just think of something," your employee might decide that reading the sports section of the newspaper sounds like a good task. It won't take long before you stop identifying with Dagwood in the comic strip Blondie and start understanding why Mr. Dithers seems so stressed out.

Finding a good employee is a tough job and it means accepting the extra work and documentation that goes with it. But here's another secret. A good employee not only makes enough money to cover a paycheck, he or she also makes you money. This is a very important benchmark by which to judge employee effectiveness. It may take a while to get to that point, but that's what growth is all about.

• Adding hands doesn't necessarily help, unless they are the right hands; hire slow, fire fast.
  
• New people, even if they fit, don't automatically help right away; expect a learning curve.
  
• Even your good people will make costly errors if stretched too far--and it's not fair to them.
  
• Load flexibility is really hard to build into the process, but is absolutely necessary to protect quality, profit (per job and per client) and your people, as the load increases.
  
• Vacations are good and necessary; people should take more time off.

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