Salary: $30,000
Education: Two years at Orange Coast Community College
Other companies started: None
Last job held: Managed Los Angeles office of Executive Express, a courier company based in nearby Orange County
FINANCIALS
All-Ways Courier Projected Operating Statement
($ in thousands) 1992 1993 1994 1995 1996
Revenues $300 $360 $468 $631.8 $884.5
Expenses
Salaries/benefits 204 212.4 $298.8 380.7 398
Cost of sales 12 19.2 26.4 33.6 38.4
Marketing 11.4 18 24 30 36
Overhead 57.4 65 71 76 80
Pretax Income $15.2 $45.4 $47.8 $111.5 $332.1
(continued)
WHAT THE EXPERTS SAY . . .
OBSERVER
ED KATZ
CEO of Choice Courier Systems, based in New York City. Choice is the "whale in the pond," as Katz puts it, doing $45 million in annual revenues, with offices in nine states.
How is Whiteford going to pay the drivers? Every $1,000 in revenues she brings in beyond $18,000 puts her in hock because it goes below the line into payroll.
She has a big account, Hemdale. If I were her, I would bill in advance, since she signed a one-year contract. You don't pay rent at the end of the month, so why should Hemdale pay its courier after using the courier services? Then she can issue Hemdale credits and invoices for courier-service variances from the monthly average. Similarly, at the beginning of the month she should bill Kodak for the rent and also the average amount of delivery charges every month. Cash flow is the survival word for any small business, if it's going to make it.
Whiteford needs money and time. There are major companies that, because they sell to the government at some level, are looking for minority- or female-owned businesses. If some smart investor got behind her, she could sell a bundle. Abrams didn't put in enough money. If she's got to finance this venture out of cash flow, then she shouldn't grow more than 10% a year. She's a good salesperson. Her only problem is capital.
COMPETITOR
STEPHEN MILEY
Executive vice-president of the Go-Between Inc., a $2.5-million courier company based in Los Angeles. Also president of the Messenger Courier Association of the Americas
I think Whiteford does have the intelligence and energy to make this thing work. But there are other things she might not be able to control. One is insurance. As a result of an auto insurance rollback in California, mandated by Proposition 103, many insurers have flat-out left the state and others have reduced the range of coverage they are willing to underwrite. You can get insurance under the assigned-risk program, but the effect is to push premiums sky-high. I have seen courier companies here go from paying $2,500 a year to $120,000 a year for "non-owned and hired" coverage. If Whiteford were to get caught in that web, it could be devastating to her. It could be a blow she couldn't handle.
It's taking more and more of an owner's time to deal with the externalities of this business, versus the day-to-day internalities. We are all so caught up in dealing with the insurance problems and the IRS. I see a potential problem for Whiteford in the way she pays her drives. She is using an allocation basis to compensate them. The IRS is going to say, "Look, this flat allocation is not going to fly. You pay a wage plus a documented expense, period." The IRS has backed off somewhat at the regional level because of national discussions about what constitutes an employee and what constitutes an independent contractor, which is a hot issue. But Whiteford might have to increase her wage base and decrease reimbursement, and that would drive up her payroll taxes. With workers' comp at 17.6%, that represents a substantial hit. She has been very lucky so far, but how long will that continue?
OBSERVER
DALE BUCK
President of Florida Courier Express, an Orlando-based, $2.6-million delivery company. Holds parts-delivery contracts with several major companies.
This is not an easy industry. If your business is strictly an on-demand type of thing, you are competing with fly-by-night outfits that skate around the licensing agencies. By avoiding all the costs of being a legal business entity -- insurance, for example -- those outfits can always undercut your prices. The Public Utilities Commission has so many eggs to crack that most of these illegal operations get away with it.
So contract business, like what Whiteford has with Hemdale and Kodak, is the way to go. The large corporations are looking for someone with the stability, the insurance, the people, and the infrastructure to take care of their problems. You've got to have those contracts if you are going to grow at all.
However, you need to find a way to finance those contracts. For example, we maintain a $100,000 cash reserve that we can float on for three months if we have to. So I see capital as Whiteford's most pressing need. Frankly, I'm amazed at what she has accomplished so far with so little capital.
COMPETITOR
JEFFREY RHODES
President of New Courier, based in Los Angeles, with eight offices in five states
Whiteford should begin to foster a banking relationship immediately and consider an accounts-receivable line of credit. It's a tough banking environment, but even if she starts with a $5,000 line and pays it back, she could build it gradually to $7,000, the $10,000, and so on. That's something she needs to have, and it's a lot less expensive than giving away equity to attract capital, which she has already done. There's not that much left to give away.
She shouldn't try to grow too quickly. It's important to take a rest, a settling-in period, at various levels if she wants to maintain quality service. This is a people business, and you're only as good as your last delivery. She has Hemdale's support, and that's positive, but nothing is forever.
She's involved with the trade associations and has built up a network, and that's good. She's learning a lot about the industry through her competitors, and that can save someone like her a lot of years and a lot of heartache.
