As a business owner, stop for a moment and think about where your money disappears to each month.

Rent? Insurance? Advertising?

And while these are all valid candidates for, "Highest Expense Category of the Month," I must tell you that, sadly, all of these costs pale in comparison to your biggest cost, which is personnel.

What's more, if you're in a company that sells services rather than products, your "people costs" will likely be even higher.

But this is not a column about health benefits, rising wages (actually, the opposite is now true ... the most recent studies are now starting to show that wages are declining, not increasing), or anything of the like. No, this is a column that is strictly about the turnover side of the "people" equation.

Traditionally, turnover is the largest cost that a business owner or manager deals with. Ever. Think about it. Here's the process:

1. An employee leaves you.  After an appropriate amount of time (and panic), you begin to spend your first tranche of money.  How, you ask?  Believe it or not, immediately upon an individual’s termination or resignation, real costs are incurred.  And they are much higher than you might think.  For one thing, the resigning employee must be “mustered out” of your current organization.  This takes into account everything from recovering his/her keys to conducting “exit interviews” with managers and “uber”-managers. Also, the issue of communicating to the rest of the company must be dealt with. Oftentimes, this requires some personnel expert’s time.
   

2. Next, decisions have to be made regarding this person’s replacement.  A question that is all-too-infrequently asked is, “Should we even replace this person?” Sometimes,  “replacement” is just not the right call. You can analyze the “replace/no replace” decision as follows:  a.) figure out who will do the work left behind by the resigning employee, b.) see how much of that work was actually irrelevant or unimportant.  (You’ll be surprised.) c.) inform all relevant managers as to how the “new” work chart will look, and, d.) officially put the matter to bed by issuing revamped work flow, organization, and goals/objectives charts.  

   (Unfortunately, 99 percent of all resignations/terminations end up with someone new automatically and mindlessly being hired.  Sometimes I think that not filling a position is such an unnatural act that it isn’t even discussed.)

   
   
3. Once the decision to replace has been made, a thousand points of light start to appear.   In a smooth-running company, the individual in charge of personnel merely goes to an electronic file of resumes and culls out the best fit (more on this later). But I’m going to assume that our mythical organization is not one of those “smoothies.”
   
4. In order to avoid writing a 10,000-word column, I’m now going to consolidate the whole host of steps that results in a new hire.  Here they are:
   
   
   • “Troll” – Everybody knows this step.  A huge “tuna net” is dropped into the most fertile fishing grounds (Craigslist, Monster, newspaper classifieds, and so on) with the hope that, and magically, perfect candidates will be “caught.”
   
   
   • “Network” – We all know this one as well. Basically, you go to your LinkedIn or iPhone lists of friends and acquaintances, looking for the people, and for any reason, who know the whereabouts of the individual you’re seeking.
   
   
   • “Headhunt” – Lastly, and this is especially the case when you are looking for high-powered personnel, you get in touch with your executive recruiter; telling him/her all that you can about the person you’re looking for. [(Note: You will make this person’s life very, very easy (and save yourself some money) if you can provide them with a very detailed description of the candidate you’re looking for. While this may seem obvious, most recruiters tell me that prospective employers almost never think to provide a detailed job description.]

   
There are other methods of accruing candidates, but the above gives you a good start.  Now that you have built up your candidate base, it is time to whittle it down to the handful of people you will interview.  Now, the idea is to reduce a list of anywhere from ten to one hundred candidates down to just three or four.

5. This whittling process starts with the aforementioned position description (I absolutely hate, hate the phrase “job description”).  These days, and I’m not entirely sure that I even would consider this to be a method of “resume reduction,” computers can actually make the first cut themselves.  This is a process of feeding in keywords and matching them with resumes.  Whatever your method, you must end up with a smaller list of really well-matched candidates.
   

6. The interview process – Finally, your candidates must go through the machine itself.  However this is done in your organization, the process is lengthy, odious, and time-consumptive. In point of fact, and if done right, this process will chew up the time of the people in your organization who, and unfortunately, can least afford to lose that time!

   And yet, this is how it must be.  You cannot scrimp or short-cut here.  How many times have I seen management bitch and moan about the qualifications of an individual whom they had every opportunity to vet, and yet found some way to duck out of this (remember the word, “odious”) task. Shame on them if they did, but there is where the rubber meets the road.

   The interview process is hated, but absolutely critical.  Some companies call people back for second, third, even fourth interviews.  Some companies make people perform the tasks that they will ultimately be expected to perform once hired.  I’ve even seen organizations pay people to come in for a day or two, to work at the exact position they would be filling were they to be hired.  Don’t cheat in this area!

   
   
7. At some point, you’ll have a finalist or two.  Now, the really hard work begins.  Again, I won’t go into detail, but this is where all the psychological profiles, intelligence tests, and reference checks take place.  Please remember to check the references they don’t give you!  Checking “given” references is one of the world’s greatest wastes of time.
   
8. While the above step is taking place, the job offer must be prepared.  Hopefully, this is off-the-shelf.  But sometimes, and especially for sales people, the compensation plan can be tricky.  This can then lead to participation by lawyers and accountants.  Just so you know.
   
9. And there you have it --- a new employee, all set to produce like crazy.

Or not?

For the grim fact of the matter is that, and in about 40 percent of the cases, the “fit” will not be good and the brand-new employee won’t last six months.  (Kind of makes marriage look attractive, no?) 



But you, the employer, must accept this.  And while accepting it, you must also steel yourself for the fact that you, and for the entire duration of your “honeymoon” with this new employee, will be paying the freight.



It is written.  You have no choice.  It’s the law. 



And of course, employees in the honeymoon stage very seldom provide much return on your investment.  By definition, they almost can’t.  As Jesus said, “For they don’t know what they’re doing.” And so, educating them is your problem.



And while we’re talking about educating, remember that the act of teaching frequently requires extraordinary costs for such things as outside trainers, licenses and certifications, and travel and living expenses.





Hold on!  We are not done with you yet!



For when your brand-new employee does fail, and you either let him/her go or he/she resigns, you must pay once more.  You must pay for their severance, and, you must pay for whatever, and however trivial or paltry, vacation/holiday value they might yet have coming. 


There are other expenses related to employees who don’t work out. These expenses can include: a.) recruiter fees (generally, a recruiter will offer a replacement individual); b.) fees for specific training courses that you conducted for your now-departed employee, and; c.) the very fact that your unemployment insurance premium may likely increase. (This, BTW, is the “gift that keeps on giving,” as you’ll pay the increased UEC for quite some time.)


All because someone left.


But hey!  You can pass these costs on your customers.  Right?


Wrong. Because your competitors may be better at hiring than you, they won’t have these costs. Thus, they can reduce the sale price of their products and services; thus starting a downward sales spiral in your company.




I read articles all the time about such things as:  “The Strategic Weapon Known As IT,” and “How Just-In-Time Inventory Techniques Can And Will Impact Your Bottom Line,” and, “How Technology Improves Productivity.”

But have you ever read an article about, “How Smart Personnel Acquisition And Management Gave Us A Strategic Advantage!”?



Of course, you have not.



I’ve always wondered why.



Because “better hiring” can and should be a strategic advantage. The company that is best at hiring, training, and retaining its personnel is the company with the most significant competitive advantages. Because it is also the company that has the best-looking expense line.

Let me close this article by giving you just a couple of tips as to how you can make your organization world-class when it comes to hiring and retaining personnel. Here they are:

• Interview every day! – Create a “stock pile” of resumes for the day that you get that letter of resignation.  Have new people ready to go.  (Of course, this database must be continually weeded. But this can be a clerical task.) Besides, by constantly interviewing your competitors, you will gain information that almost every other department in your company can use.


• Employ surveys and technologies to improve “fit” – Number one in my book is the Predictive Index.  This is a magnificent tool that gives you insight into the personality, and therefore “fit” of a prospective employee.  For more information on the PI, contact Dan Courser. Remember, “poor fit” is probably the number one reason why people leave an organization.


• Improve your management skills.  Keith Ferretti, a frequent guest on our talk show, is fond of saying, “People don’t quit companies, they quit managers.”  So, make your managers more likeable.  Make them better managers. Train them.


• Finally, resist the urge to hire during good times and fire during bad times.  I don’t know how to convince people of this, but companies invariably add staff when things are going well, even though they probably don’t really need that staff.
 
• Conversely, people let people go during tough times instead of trying to fight, tooth and nail, to find ways to pay them and keep them.  Just add up all of the costs in all of the steps listed above.  That is what you’re throwing away the minute you terminate someone just because you’re having a down quarter.  And if the employee is productive, what are the odds you’ll ever be able to get him or her back, or even find someone as good? I can tell you, they’re not very strong.





You probably knew a great deal of what we just wrote.  But I still think that everything in this article is important and should be burned into the cerebrum of each and every business owner and manager on the planet. 



Efficient personnel management will give you an astonishing advantage over your competition. So, start practicing it now.  You’ll reap the results forever.