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The hardest thing to do in business: building an efficient organization (Part 3)

__Always pay your workers first.

You can’t call yourself an entrepreneur if you have the habit of not paying your workers on time, erratically, or not at all. Real business leaders always pay their employees first. Let’s call it the first law of entrepreneurship.

Let’s talk.

I began my business career as a construction contractor more than 30 years ago. My business entailed getting construction contracts, some which took several years to complete. I would sometimes have thousands of people working on my projects. 90% of my people were paid on a weekly basis. It was almost a ritual, whereby we’d go to the bank on Friday morning to collect the “payroll.”

Each worker was paid in cash, and we would sit and pack the money into little brown envelopes, after deducting taxes. We’d then travel to the sites and pay them their money.

I never ever missed a payroll… except once, and it probably saved my life. I was abducted from my office at gun point on one of my payroll days. The person who raised the alarm that I was missing said this: “We know something has happened to him because he didn’t come to supervise the release of this week’s payroll.”

# If you owe your workers money, you’re not yet an entrepreneur.

The second law of successful entrepreneurship is this: If, for any reason, you’re going to miss your payroll, you must always make sure the lowest paid workers are the first to get paid — not the managers and others you deem most skilled.

# Always pay the lowest paid workers first. They’re the most vulnerable.

If we didn’t have enough money to meet our payroll, I spoke to my senior people and asked them to make the sacrifice. It also meant I myself would go home with nothing. But workers like cleaners, laborers (we had a lot of these in the construction business), drivers etc., were always paid first. This always included the youngest people in our business.

If you want to go far as an entrepreneur, treat workers’ salaries and wages as sacrosanct. If you see a big man who has lots of cars, a big house, goes on holiday overseas but is in arrears on salaries and wages, he’s really not an entrepreneur.

Don’t be fooled, he’s not a big man at all! True entrepreneurs pay their people on time, all the time. And they take care of the most vulnerable members of their organizations first. I’d rather someone called me a successful entrepreneur on the basis that I never missed my payroll, than on the basis that I made a billion dollars.

Now to help avoid such a crisis, there’s one thing you must learn to do straight away in your business, and that’s manage your cash flow… your “accounts receivable” (sales) and your “accounts payable” (expenses). If you don’t keep track of your cash flow, I guarantee at the end of some months, you’ll have a shortfall.

If you haven’t already done so, put together a cash flow budget, with a few different scenarios (best case, worst case, different assumptions). You can’t predict everything, of course, and surprises happen, but do your best with what you know now. Cash in? Cash out? Timing? Enough cash to meet payroll? (This is a complicated subject but we’re just talking about payroll here.)

A few years ago there was an article in Forbes’ magazine called “Success will come and go, but integrity is forever.” Never forget that. Most all businesses have legal and contractual obligations which you must respect. But there are also moral obligations to consider… Do you know the difference?

To be continued. . .

 

16 thoughts on “The hardest thing to do in business: building an efficient organization (Part 3)

  1. Strive Masiyiwa Post author

    Afterthought 1. The famous American football coach, Vince Lombardi, once said: “It’s not whether you get knocked down… it’s whether you get up.” There will be times when being an entrepreneurial leader will be really difficult. I talked about such times in the Eagle in a Storm series. Steel yourself for hard work and prepare yourself for the hard decisions and sacrifices a “big man” (or woman!) must make in times of challenge, because they will come!

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  2. Strive Masiyiwa Post author

    Afterthought 2. Relatives can be some of the most loyal employees in a small business. It’s also easy to forget that they are employees who need to have a CONTRACT, and must be paid a salary, just like anyone else. Make sure you pay salaries even to that “small cousin from the village who cleans the place.” That little cousin deserves respect, and she has some dreams too, which need money!

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  3. Strive Masiyiwa Post author

    Afterthought 3. Every employee must have a written contract of employment, even if that employee is your only employee, or a relative. You will not become a big business if you don’t learn the habits and practices of big business.

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  4. Strive Masiyiwa Post author

    Afterthought 4. If you go one week without paying the payroll, park your car at home, and go to work on public transport. If you haven’t paid the employees for more than one month, sell the car, and pay them. I’ll never advise you to do something I’ve never done myself. My staff at Econet Zimbabwe will tell you I gave up my car for more than a year when things got tough. And yet I never missed my payroll obligation.

    People laughed at me and said, “Masiyiwa is broke.” The newspapers wrote about it, but I never lost the respect of my employees, and they stuck with me. We shared a vision which burned deep in us. No one respects an entrepreneur who makes an exception of themselves, whilst asking others to sacrifice.

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  5. Strive Masiyiwa Post author

    There is a story told about a Christian Entrepreneur who went to the Tentmaker with a problem:
    “My business is not growing, and I’m always having financial problems. I have tried everything, and I pray and fast almost every day. What should I do?”
    “Come back in a few days, and I will tell you,” replied the Tentmaker.
    A few days later the Tentmaker called, and gave this word:
    James 5:4
    Indeed the wages of the laborers who mowed your fields, which you kept back by fraud, cry out; and the cries of the reapers have reached the ears of the Lord of Sabaoth.

    Then he the Tentmaker added:
    “why are you running around in that beautiful car, and yet you have not even paid the gardener?
    You say your relatives have plenty of food and shelter, so they do not need to be paid for the work they do for you. Pay them rather and let them attend to their own affairs, as adults. Attend to these whilst you have time, otherwise you will not even have a business.”

    Reply
  6. Strive Masiyiwa Post author

    Reply to question:

    “What does a typical contract contain?”

    When I started my business, I created a one page “contract document” for each employee. It had the following sections: 1) your duties; 2) your tasks; 3) your responsibilities; 4) your salary (any lawful deductions from salary), and payment date, working hours, holidays.
    [Just simple bullet points. Nothing “legalistic”.]
    I’d then take each employee through it, and we’d both sign. Even the cleaner and the relatives had this simple contract.
    I also used this “one page” template when recruiting people. After recruitment, I would turn it into a contract. Even if the person was not educated, and could not speak English, I still prepared and discussed a contract for them.
    If a person didn’t have such a contract, I didn’t want them hanging around the place, even as a volunteer or “helper”. This leads to an inefficient organization.
    You don’t necessarily need a lawyer for something like this, depending on your business and the type of job__Just a sense of fair play. And you can Google to find some draft contract language online.
    When you get bigger (and you will if you adhere to professional management approach), you will soon hire HR people etc.
    If you have a friend who knows HR, you can also seek their advice…but keep it simple, and fair.

    Reply
  7. Strive Masiyiwa Post author

    Bhekithemba Mhlanga writes:

    Sorry great man I will have to disagree with you on this one. Relatives are the WORST employees. They are not fully motivated because “its my brother’s company” whereas other employees know the consequences of “skiving”. I would happily share my profits and success with relatives but will NEVER hire them. That being said I’m a big fan of your posts. You have revealed to me a side of business I never knew existed. Kudos sir.

    My reply,
    The subject of employing family members in a business is a big topic in its own right, and perhaps one day we shall focus on it. There are strong views for and against, but it’s not our topic today.
    It is a reality than most small businesses in Africa are family owned, and employ relatives. Last week I was in a major European capital and met with a member of a family who have run a family business since 1929… it is amazing successful. I have also seen real disasters particularly in Africa, and some successes too.
    It does not change the fact that everyone must be holding a proper contract.

    Reply
  8. Strive Masiyiwa Post author

    Jacinto
    Writes:

    Sir, Im now confused. I just read the book THE RICHEST MAN IN BABYLON and it suggests that one must pay himself first not the workers.

    My reply:
    I read the little book decades ago and it is very good. It was written more than 100 years ago, by an American Christian businessman.
    I believe he was talking about what we call “dividend distribution” today. He was not advocating that you do not pay your creditors, and particularly your workers, who must be paid first, as well as your taxes.
    You should only pay yourself after you have settled your obligations, including salaries, and creditors. It is from the surplus that you pay yourself, and your partners (if you have any).

    Reply
  9. Strive Masiyiwa Post author

    How about your own contract?

    If you look at my afterthought on the basic elements of a Contract, it also applies to you the owner of the business!
    When I first drafted a contract for each of my employees, I also drafted the same contract for myself, as employee #1. Even if you are a “one person” business, you must have a contract between you and the business.
    So I wrote a “One page” contract, which included all the things I pointed out in that Afterthought (read it). Every month, I received a salary according to my contract, even though I owned the business. I never took one cent more than my contract. My bookkeeper paid me, and kept the records.
    So, do you and your partners in the business, have a contract?
    Take this practical advice from me. You will be amazed what it does for your cash flow!

    Reply
  10. Strive Masiyiwa Post author

    Afeke, writes:

    I don’t think we have this channel in GHANA

    My reply,

    Kwese Free Sport is available on Viasat channel in Ghana. Kwese App is also available in Ghana, and you can download it on your mobile phone. Some of my friends in Ghana having been watching the NBA channel, using their Kwese App.

    Reply
  11. loice chigodora

    thank you Dr Strive for this on time post. am rolling out my business in february next year and thanks for the advise. i want to grow as an enterprenuer so i will stick to the set rules especially coming from a man like you.thanks again.

    Reply
  12. David Ogunbode

    Dear Mr Masiyiwa,
    This post has really blessed me and certainly God sent for where we are as a business. I have kept to this rule around 95% of the times but there are times I have not quite been as faithful as I would have loved to due to the business pressures and life circumstances. Reading this has made me more resolute that this is the only way forward. Thanks and blessings.

    Reply
  13. Prince

    I have been inspired by the way you teach business. I have carefully read all the advise you give in you Facebook page. I finished my university studies on the year 2011. I have this results today to show you, that indeed you are one of the best teachers, filled with wisdom, knowledge and understanding. I would be mistaken if I don’t say thank you for everything you taught me.

    I am now working on a social network, that will allow the users to run online business at real time. Currently the website is done and I am working very hard to find sponsors of my website.

    This is what you have taught me.

    Reply
  14. Rukudzo Irene Nyoka

    https://fb-s-c-a.akamaihd.net/h-ak-xft1/v/t1.0-0/p206x206/14956629_963164560455133_2931248313848628584_n.jpg?oh=5b8ee487c77c00949222ec597078fb23&oe=58F7BD32&__gda__=1492234266_91174ef9d371c1c6c423a20c1d1e9620

    Good day.
    It was a pleasure meeting you recently at the African Leadership Network gathering in Mauritius. My name is Rukudzo Irene Nyoka from Bulawayo, Zimbabwe. I am the young lady, second on your left on the photograph. A few weeks after our meeting I encountered a fallback on my academic tuition finances which has led to a few ultimatums which are not in my favor. I have done my best to reach out to other sponsors and was also advised to check the Higherlife Foundation which by the Grace of God I was privileged to be a part of in my early years but could not continue as I chose an International University. I believe I have nothing to lose and more to gain by reaching out to you as my last resort unto achieving my dreams as a Pan African leader.

    Yours sincerely

    Rukudzo Irene Nyoka

    Reply

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