We find DISC and values a useful combination because it defines responses to various situations, including behavioral communications models, which tend to highlight trends that promote team effectiveness. The acronym DISC stands for the four aspects of interpersonal behavior:

• - Dominance – relating to control, power and assertiveness;
• - Influence – relating to social situations and communication;
• - Steadiness – relating to patience, persistence, and thoughtfulness; and
• - Caution – relating to structure and organization.

As with all such tests, the questions asked will reveal a dominant personality trait or type, but that score or ranking should not be used to eliminate a candidate from consideration. Instead, it should provide some insight into how well that candidate will fit in the role assigned based on his or her personality traits, and how well he or she can adapt to the role and the company. There are six key values, and using their ranks, combined with DISC, gives a clear picture of how someone will perform in a specific role.

For example, if you have specific functions that need to be completed, candidates who rank higher for dominance and compliance might be better suited, since D and C types are task-oriented. However, if you need someone with strong interpersonal skills, I and S types tend to be people oriented.

“In working with Pacific Crest Group, we helped them look at people’s behavioral and values profiles together,” said business consultant Mark Friedler. “The DISC shows HOW someone does things, the PTSI Values shows WHY they do it. We recommend using a unique combination of DISC and Values that helps PCG accurately determine the ideal fit for an existing team member or new hire. This model is often applied to an entire company to give a graphical and easy-to-understand picture of their team and what the company needs to be successful. A valuable result of this process when done at a company level is that it improves communication and understanding within the team. In fact, we did this with PCG and its own team.” (For more information, you can contact mark@markfriedler.com or call 415.683.6601)

“When using personality testing for hiring assessment, the objective is to uncover motivational as well as behavioral values – what makes the job candidate tick – and then match those values to the requirements of the position. You also want to use those values to assess the match between the candidate and his or her supervisor. Will they work well together as a team? Do their personality types mesh or clash in terms of teamwork and communications?

Also remember that good hiring practices are about fulfilling needs, not likes. You might find a candidate who is a great person, amiable, and seems like a great personality for your organization, but that may not be the personality you need. That person may rank high in the Influence category or in S for Steadiness, However, if you are seeking an aggressive sales professional you might be better served looking for a candidate who scores higher in Dominance.

Personality testing can be revealing during the hiring process, but it is only one small part of the process. More can be revealed by an effective interview, which is a topic for a future blog.

Is it better to hire based on fit rather than expertise? Quoting from an article in Fortune magazine:

“Cultural fit is incredibly important on a candidate’s abilities to use his skills,” says Nancy Rothbard, an associate professor of management at The Wharton School. “You have a positive effect through skills, but culture completely cancels that out.”

Cultural fit can cover a variety of characteristics, but ultimately, Rothbard and others say, the question hiring managers should be looking to answer is, does this candidate’s values align with those of the company, be they work-life balance, corporate mission or how to handle a customer phone call.

According to Rothbard’s research, poor cultural fit can completely negate any positive career experience or skills a candidate brings to a job. Some candidates she surveyed had to be retrained for jobs they had done for years to accommodate how their new role had to be performed within the new corporate culture. Tasks can be taught, experience can be acquired, but cultural fit is hard to transfer to the wrong job candidate. And the higher the position in the company, the harder it is to assess fit. According to John Challenger, CEO of outplacement firm Challenger, and Gray & Christmas:

“At higher levels, you need to conduct multiple interviews across the chain, with employers and employees. What kind of connection do you feel to the candidate? Does this person seem like one of us?”

Surprisingly, job interviews are an exceedingly poor way of assessing cultural fitness. During an interview, a candidate will tailor his or her responses to suit the interviewer, and the more experienced the candidate, the better he or she is able to adapt to the interview.

More interviews by different company stakeholders can help provide a better assessment for fit. The use of psychometric tests also is a good way to gauge cultural fit and is gaining in popularity, particularly in Europe. Many companies also are posting more insight about the company culture in their job descriptions, e.g. long hours, independent work, extensive travel, etc., so candidates will weed themselves out before the evaluation process.

We recently blogged about some of the steps Accolo recommends when evaluating job candidates. However, before interviewing qualified candidates, you need to have a solid plan in place to understand what types of candidates you are seeking and how they might fit into the organization.

We recommend preplanning your workforce before you start recruiting. Assess the technical skills needed for the position that needs to be filled:

• - Evaluate the organizational structure and be sure that the open position has a clear purpose that supports your company mission.
• - Clearly define the open position and ensure that an appropriate Job Description has been developed.
• - Determine the minimum qualifications for the position. Are there special credentials that need to be defined (CPA, MA, MD, PhD, etc.)? Are there certain experience levels that are required, or a number of years of service?

- Analyze the compensation plan. Remember you get what you pay for. Performing a compensation analysis will tell you if you are competitive and can attract the best candidates.

When creating the job description, the mistake many recruiters and hiring managers make is writing a skills-based job description that only outlines the requirements to do the job, rather than the desire to fulfill the role. A performance-based job description provides a better measurement of how the candidate will perform since it defines the expectations for the position.

For example, consider the job description for a telephone sales position. A skills-based job description would include:

• - A college degree
• - Industry experience
• - Strong interpersonal skills
• - Two years of sales or customer service experience

The criteria are quite broad. How many candidates would qualify or think they qualify for that type of a position? Now, if you take the same job and describe it using a performance-based job description, it might include:

• - Make 150 outbound calls per day
• - Achieve sales quota within 90 days
• - Achieve 20 percent customer renewal rate
• - Handle inbound customer calls and handle routine customer issues

The performance-based job description sets the expectations for the candidate so he or she can determine if this job is really right for him or her. More importantly, it provides a benchmark that allows management to objectively assess the candidate’s performance.

Research also shows that an effective job description should cover:

• - Day-to-day responsibilities so the candidate can determine if his or her interests align with those responsibilities. Daily schedules and a “day in the life” scenario will automatically weed out candidates who lack the drive to do the tasks required.
• - Company fit, including alignment with the company culture and any potential career path.
• - Employee expectations, including key performance indicators, required tasks, and job expectations.

With proper preplanning and laying a solid foundation before you start recruiting, it will be easier to narrow the field to a small number of suitable candidates. The right evaluation tools and criteria will make it easier to identify the top performers who can help the company achieve its goals.

When establishing system benchmarks, it’s best to stick to the essentials. Leave room for common sense and avoid the clutter of excess detail about process.

Here’s an example from e-Myth, who created the system that we use to develop client systems, on how to create a system for residential real estate appraisal:

1. Identify the property by parcel number and address
2. Research comparable homes in the area that were recently sold
3. Search county records to obtain critical information about the property
4. Conduct an on-site appraisal
5. Enter the data into the appraisal software
6. Draw the floor plans
7. Analyze the data and create an estimated market value
8. Complete and submit the appraisal form

Each work step is a self-contained sub-system with its own level of detail. For example, a checklist of items to research as part of step 3 would be valuable part of the sub-system. However, the system outlined here provides the basic work steps and sufficient structure to represent its own integral system. The steps are sufficiently well defined that they can be delegated to anyone and the outcome that results should be what is required for the task.

As part of the design and documentation of any system, be sure to identify ways to quantify the results in an objective fashion. For the appraisal model above, for example, the results can be quantified with a simple report cataloging the appraisal price for properties listed compared to the actual sales price. To assess performance, determine how far apart the appraisal price is from the sale price. Establish a target as a benchmark, such as a gap of no more than 10% of the appraisal value.

As part of the system plan, be sure to identify the resources required to achieve the goal. The basics to consider include:

• Staffing – What manpower is required to operate the system? Are there specific people or skills required? What about scheduling?
• Workspace and facilities – What physical space is required?
• Equipment needed – Are there specific devices, vehicles, or equipment needed? In our example, consider that the appraiser needs a car to visit the properties and software to process the data.
• Supplies – What about consumables such as paper, forms, or other raw materials.
• Information – What information is needed? For example, our appraiser needs county records, comparative pricing information, schedules, etc.

Once the performance benchmarks and necessary materials have been identified, document everything. The long-term objective is to create a system that can be maintained by anyone who is given responsibility for that system and refined over time. Documenting the System Action Plan gives you a baseline you can use to perfect the system. Systems development and refinement is a never-ending process, and that means starting with a well-documented process that can be adapted to changing requirements.

1. Specify the desired results. Determine the result you want the system to deliver and then name it. Start with the word “To” and write a concise statement outlining the desired outcome, e.g. “To complete all the necessary paperwork for new employees.”

2. Diagram the system. Identify the unique steps necessary to complete the system and their sequence and create a flow chart showing each step, including any dependent steps.

3. Write out each step in clearly stated objectives. Each block in the diagram is a work step, so define each step with a clearly stated benchmark that delineates when the task is completed. It’s best to start with a verb. For example, “Complete W-2 paperwork within 48 hours of new hire start.”

4. Assign accountabilities. Identify the roles of positions that are responsible for each step in the system, not individuals. The concept behind creating business systems is that those systems are transferrable. The final system document will end as part of the company’s System Action Plan.

5. Determine timing. Open-ended tasks are not benchmarks. Each task needs to have a timeline assigned, and the overall project needs a timeframe. Timing can be specific (e.g. Day 1) or general (e.g. upon receipt).

6. Identify necessary resources. Each system requires resources: materials, staff, information, work space, etc. List the resources and the quantities needed for each step in the system. Some systems will merely require personnel rather than material, but be sure to list what is needed.

7. How do you quantify results? Determine what objective metrics you will use to quantify system performance and how to document the results.

8. Establish standards for system performance and the staff responsible. Standards can be stated in quantity, quality, and behavior, and can be measured in terms such as costs, dress codes, output, or ethical standards. If the standard is directly related to a successful result, then describe the standards using phrases like “will be,” e.g., “Invoices will be issued no later than the first of each month.”

9. Document the system. Once the steps and metrics have been defined, document the entire system in a System Action Plan. Create a template and capture the results. The system is not completed until it is written down.

Once the system has been designed and documented, be sure to test it. System development is not an academic exercise but needs to be applied in practice to assure that everything runs smoothly and no steps were overlooked. Use two more steps to make sure the system works to your satisfaction

10. Test the system. Use it in practice and determine if it meets the company’s objectives. Does it work smoothly? Are there steps or resources missing? Do the metrics make sense and do they provide meaningful information?

11. Revise the system as needed. Identify gaps in the process flow or in the processes themselves and correct them. Be sure to update the documentation accordingly and revise the System Action Plan.

System development is a never-ending process. The system should be reviewed and revised on a regular basis to make sure it continues to function properly and delivers information that is valid and valuable, especially as business conditions change. Remember that technology changes, customer needs change, the size of your business change, so your business systems need to evolve along with other aspects of your operations.

Many of our clients have trouble getting started creating systems for their operations. We adopt the e-Myth methodology that outlines a simple yet comprehensive approach to creating systems. Today we will explore some of the preliminary steps in identifying where systems can be of value and how to start the process.

The first step is to determine which systems your business needs to run smoothly. In theory, every aspect of the operation can be systematized. Choose a new product launch, an advertising campaign, an HR function, or some other aspect of the business that needs to be organized.

Begin by determining the desired outcome for the new system. What is the end goal? Then work backward, and understand that systems are interdependent, so the quality of the results from other systems and data sources will affect the outcome of the current system, i.e. garbage in, garbage out.

When creating a new system consider using a three-step approach: innovate, quantify, and orchestrate. Innovation denotes action; not just creating something new but improving on products and processes already in place. If you are unsure of where to start with a new system then use a trial-and-error approach. Since you have already determined the desired outcome and have some idea of the steps required trial and error isn’t random, but rather a process of testing known factors and adjusting until there is a satisfactory result. An analysis of the innovation process leads to quantification – how to measure the success of the system. Once you have a proven approach, you can move to orchestration.

Consider the following example. A new system needs to be created for new hires. The end goal is to make sure that all new employees are familiar with company procedures and all their employment and payroll paperwork is complete. (To keep it simple, let’s not consider other new hire concerns, such as training and evaluating their job performance in the first 60 days, which would be part of different systems.) Map the steps required to bring a new employee on board. Create a checklist. What documentation or materials need to be provided? What are the payroll requirements? Determine who handles the paperwork for human resources and payroll. Once you have created the system, try it out and determine what may have been overlooked or if adjustments need to be made. To quantify success, assess how quickly the paperwork can be executed, if anything is missing, or if there are unnecessary delays or steps in completing the process. Once the system is proven to work using trial and error, document it and orchestrate it.

Think through the system and then assign metrics to measure performance and personnel to keep the system running smoothly. In the next blog post, we will review the nine steps that go into business system design.

In his presentation, John emphasized the importance of making the right hire. Only 50 percent of employees hired are considered “good” hires, and every top performer has the same productivity of three average employees. These figures dramatize how important it is to make the right hiring decision. John offers seven steps to turn your company into a hiring machine:

1. Find the emotional triggers – John says that rather than describing the position using terms every applicant will assume, write the job description as a love letter. The objective is to woo the perfect candidate. Ask yourself what the point of pain is, how to measure success, why would the perfect candidate want this job? Also ask yourself what are the common attributes of a top performer? Look for emotional appeal rather than simple qualifications.

2. Develop a compelling recruiting plan – This includes describing the position in a compelling way. For example, don’t put out a call for an “accountant”; try a different approach, such as “looking for someone who can count the beans and make them grow.” Make the recruiting message compelling and personal, and make it stand out. Add keywords at the bottom of the online job description to promote SEO. Create a short list of questions that get to the core of the position, and that promote a two-way dialogue that points to what success looks like for this position.

3. Include all candidate sources – Candidate referrals come from a wide range of sources so include them all. Use a pyramid approach starting with the easiest, least expensive means (e.g. Craigslist and online job boards) and work toward the more expensive approaches (e.g. retained recruiters).

4. Treat each applicant like a customer – Only 6 percent of all job applicants get any response to their application. That’s a shabby way to treat customers, and every job applicant can have an impact on the recruiting effort, either positive or negative. Even an unqualified applicant may be able to recommend someone who is perfect for the position. Be sure every applicant receives some form of closure, no matter the outcome.

5. Screen well and move quickly – The mistake many managers make is waiting to have a field of candidates to choose from. The right candidate may not wait and will get away. Identify the right candidate quickly by asking the right questions, e.g. don’t ask about the number of years of experience, but ask them how many times they achieved a specific goal or task, how recently, and how they achieved it.

6. Have the right interview team – Interviewing candidates takes skill, so find the right people to do it. Don’t use managers who will sell the company or ask the routine questions. Identify those resources in the company who understand the culture and can ask probing questions. Remember that it’s about cultural fit as much as qualifications so don’t be afraid to use interviewers who know the company even if they don’t know the specific job.

7. Leverage all your resources – Give each candidate a 360-degree inspection. Try using a serial approach to job history, starting with their earliest job. Ask how they landed their first job and why they left it. Then ask the same questions about their second job. Did they get a referral from their last job? Look for patterns and indicators as to whether they would be a good fit for the company and its culture. One acid test is what John calls “the airport test” – would you be comfortable spending a long layover with this person at an airport? That will reveal quite a bit.

All too often small business owners and managers don’t pay enough attention to adopting good hiring practices only to pay the price after they make a bad hiring decision. By spending more time and care up front and working with professionals who understand hiring in today’s web-driven world, companies can minimize lost productivity and increases in overhead due to poor hiring choices.

One of Pacific Crest Group’s co-founders, T.J. Van Voorhees, recently addressed the Entrepreneurial Organization about how to “Boost Your Employee Engagement.” To supplement T.J.’s presentation, we prepared a staffing strategy guide full of articles and templates to help attract and retain the best possible talent.

There are many aspects to promoting employee engagement – far too many to review in a single blog post. However, as with any business operation, employee development needs to be approached as a structured system, with objectives clearly established at the outset and measurable results along the way. The larger objective is to improve employee results and performance in a way that promotes professional and personal growth, at the same time it enhances the employee-manager relationship. The end result should be establishing a relationship that makes the employee feel supported and nurtured, and that promotes mutual respect with management. To begin the process, there have to be established goals:

1. Identify the employee’s goals. Do they align with company goals and values? For example, is the employee looking to earn more flexible hours or more paid time off to pursue other interests, or are does he or she have a clear path for advancement in mind?

2. Are there issues blocking commitment to those goals. Identify them and address them. Consider if an employee wants to advance, but is limited by a conflict with another manager or family commitments. Can those impediments be minimized or removed?

3. Create a plan. Set goals and metrics for employee development or advancement. Does that worker need guidance or a mentor? Does he or she need training? Is there more opportunity for self-direction?

4. Get the employee’s commitment. It is one thing to outline the company’s goals and expectations, but the employee has to accept them and own them as well. Setting milestones that you both agree are achievable will spur motivation.

5. Outline ways to remove roadblocks to success. Offer help or support where needed. Provide training to promote new skills.

6. Set a date for re-evaluation of progress and performance. Deadlines are crucial to the process.

Setting goals and objectives and benchmarking those objectives promotes employee retention and is the first step in developing a successful employee development program. Of course, before you can create a retention and development program, you have to successfully recruit the best employees. On March 22 we will be hosting the next meeting of the Marin Business Forum, including a presentation by John Younger, Younger, CEO of Accolo, on how to “Turn Your Company into a Hiring Machine.” John is an expert at using the latest techniques to recruit the best candidates. If you are in the area, feel free to join us, or contact us to learn more about how to fuel your own hiring machine.

The Balance sheets provide a snapshot of the company’s finances, listing assets, liability, and equity for a company. The balance sheet is typically used to calculate the net worth of the business, and includes liabilities, cash, and equipment. A basic tenet of double-entry bookkeeping is that the total assets (what the company owns) should equal the liabilities plus equity, i.e. the books should balance. Subtracting the liabilities form the assets reveals the net worth of the business.

Assets: The company’s assets are used in the operation of investment activities of the business, those tangible elements that represent the material goods that allow you to operate your business: vehicles, equipment, buildings, and even invoices or loans to customers. In setting up the chart of accounts, give each asset account its proper type and name: e.g. bank account “WFchecking” , long-term asset “Leasehold Improvements.

When setting up the chart of accounts, it’s best to assemble assets by the correct type:

1. Cash, including petty cash, bank accounts, investments, etc.

2. Items being held specifically for conversion into cash, such as accounts receivables, etc.

3. Items that can be readily converted into cash. Depending on the type of business, these can include inventory such as raw materials, direct material, or finished goods; or for retailers merchandise inventory and store supplies; or for service industries contracts in progress or work completed.

4. Items that cannot be converted quickly into cash but where their cost provides future benefits. These might include long-term investments, or property and plant equipment that might be more difficult to liquidate. Related items could be intangible assets such as patents.

Liabilities: The company’s liabilities are claims against the business or monies and goods owed to others. Normally, the biggest liabilities are to suppliers. Set up liabilities in the chart of accounts by giving it its proper name such as accounts payable, loans payable, wages payable, payroll taxes, etc. Liability accounts are separated into current (short-term) liabilities that need to be repaid within 12 months, and long-term liabilities that usually are repaid more than a year from the date acquired.

1. Current liabilities are generally those obligations that need to be paid within the current operating cycle. They include things such as demand notes, accounts payable, employee benefits, sales tax, payable interest and estimated tax payments.

2. Long-term liabilities, which are generally debt and fiscal obligations due more than one year away. Typical long-term liabilities would include long-term bank loans, notes payable, and long-term principal payments.

Equity: Equity is the company’s claim to business assets or property; assets that are owned by the company’s owners after all liabilities are paid. In setting up the chart of accounts, how equity is accounted for depends on the legal structure of the business. The equity accounts report the Owner’s Capital Invested and the Accumulated Profit and Loss of the business since it was established.

· Sole proprietorship tracks equity as owner’s capital and owner’s draw

· A partnership of limited liability company (LLC) uses partner’s or member’s capital and partner’s or member’s draw

Set up each equity account with a unique and proper name.

Note that unlike income and expense accounts, asset, liability, and equity accounts are called “permanent accounts” because they carry over from year to year, and their values adjust accordingly. The income and expense accounts are called “temporary accounts” since their value is calculated at the end of each year as the accounts are closed.

Many organizations elect to use a numbering system for their chart of accounts, assigning a reference number to each category. No matter how it is structured, the chart of accounts ultimately organizes and tracks all business activities, making it easy to generate reports and track the financial history and progress of the business.

We work closely with our clients to make sure that data is categorized correctly. This is more challenging than might be expected, especially when you have to consider how accounting software is configures and to stay in compliance with GAAP standards. For example label the account “postage and delivery” rather than “stamps” in order for accounting professionals to read your reports properly.

Understanding the types and hierarchy of the line items in your chart of accounts will make it easier to maintain clean books, and use your accounting software properly. The chart of accounts categories fall under a few basic groups: income and expense, assets, liabilities and equity accounts. We will offer suggestions as to how to structure the chart of accounts for each group in two separate blog entries. The first topic of discussion is Income and Expense that are represented on your Profit and Loss statement.

Income and Expense is the life’s blood of any business, and keeping close track of cash flowing in and out of the company is how to keep the operation running smoothly. Here is how we approach income and expense when mapping out the chart of accounts:

· Income accounts – Create different income accounts for each type of income you need to track separately. If you are tracking the same type of income from different locations, then use “classes” instead of multiple income accounts. For example, if the company owns multiple properties the result is multiple sources of rental income. Create a “rent” income account, but use classes to track individual properties and to generate the P&L report by class in order to show rental revenue for each property. If there is ancillary income from the properties, such as laundry machines, then create a new income account called “Laundry,” to separate that revenue from rent. Again use the classes to differentiate laundry revenue from each location.

· Cost of Goods Sold (COGS) – Use accounts for COGS items, such as inventory required to make a product for sale or payroll costs for employees offering services to be sold. Include any accounts that are directly related, such as merchant fees. Be sure to allocate COGS properly. For example, payroll for an employee dedicated to production is a COGS payroll expense, whereas payroll for an operational employee such as a receptionist should be categorized as an overhead expense account. 

· Expense accounts – Organize expenses in accordance with GAAP standards, but make sure the categories work for the business’s reporting needs as well. Group expenses into sub-accounts to create structure and to provide more or less detail in collapsed or expanded reports. For example, you can group expenses under broad categories such as Employee Benefits, with sub-accounts for health insurance, 401K matching, continuing education, etc. Name accounts using best practices, e.g. “continuing education,” not “college classes.”

· Avoid creating too many accounts – Many of the items that need to be tracked and reviewed can be reported using means other than categorization on the chart of accounts. For example, create one category for Telephone expenses that encompasses office phones and cell phones. Use the vendor field properly and sort by vendor to determine specific expenses for individual telephone categories such as “AT&T Mobile” and “AT&T.”

In the next blog entry, we will review balance sheets items such as assets, liabilities and equity accounts and how to set them up properly in your Chart of Accounts.