What to do when the economy takes its toll on your company, a customer's check bounces, you're making an essential hire, or you're preparing to sell your business.
I own a one-person IT consulting firm that specializes in business and data analysis and data architecture. For the 10 years that I've been doing this, I've had long-term contracts that came through referrals or repeat business. But recently business has fallen off. I now have less than half my normal number of contracts. What should my next step be? Should I get a Small Business Administration loan to keep myself afloat, think about buying a firm that resembles mine, or find like-minded entrepreneurs and merge my resources with theirs? Or should I give up my consultancy altogether and pursue a new career? --Michael
"These are difficult, almost extraordinary economic times," says Michael Madden, a general partner at Questor Fund, a New York City-based private-equity firm that invests in turnarounds and underperforming companies. "Across the board, we're seeing drastic cuts in corporate budgets. They generally start with travel and entertainment and then go into things like training. The third item to go is usually IT services and upgrades in systems.
"The $64,000 question is, how long will this last? It could be a while. A loan isn't the solution, because you don't know the extent of the downturn or how much equity you'll have to burn to sustain your basic business. And when you don't know where the bottom is, it's also not a good time to buy another firm.
"Merging your resources with a like-minded entrepreneur is the best of your options here. With the right merger, you could save substantially on infrastructure costs. And with more critical mass, you could present a better business proposition to your clients and the clients of the other business.
"You might also consider adding other IT services. One of our sister companies has a consulting group that's doing well because it focuses on fixing faulty IT systems. If you have the wherewithal and the contacts, you could always branch out into that area of IT.
"Switching careers is always an option. But you'd have to weigh the money you'd earn in a new line of work against how much difficulty you're willing to bear in your current business."
I was recently issued three $6,375 checks by a client. Two of them were returned marked "insufficient funds," while the third one cleared. How should I collect on those bounced checks? --Name Withheld
"First, redeposit the bounced checks, just in case it was a glitch," says Richard Brenner, CEO of the Brenner Group Inc., a company based in Cupertino, Calif., that places interim CEOs and chief financial officers with emerging growth companies. "I wouldn't mess around about the bank's charge on the bounced checks; just absorb it.
"If a check bounces again, call the client and ask why they issued a bad check. If they say, 'Hey, I just don't have the money,' you have a couple of choices. Either you try to maintain the relationship or you go after them with legal remedies.
"I always tell my CFOs to pursue the first choice. Go talk further with the client to find out what the problem is. Ask, 'When will you have the money?' or 'How do we solve the problem?' Or discuss setting up a payment plan. Remind your client that he doesn't want to issue checks that bounce, because it could be a felony.
"If that doesn't work, I'd have my lawyer write a strongly worded letter. But it shouldn't threaten; it should say something along the lines of 'You have a debt to my company. You have issued these two checks, and they have both been returned to me due to insufficient funds, and unless you remedy this within five days, my company will take whatever actions are available to it within the bounds of the legal system.'
"The third step is either turning the debt over to a collection agency or going to the authorities. Bouncing a check that's more than $5,000 could be a felony, so the individual is exposing himself to legal charges.
"However, there's one piece of the puzzle you need to figure out. You have to know that the client has the money to pay you. If his company is going down the drain and you're the catalyst to sending it there, you won't get any satisfaction. So working out a payment plan is usually your best option.
"The amount of money I'd accept depends on the gross margin on the service that wasn't paid for. If it's 50%, then I'd take 50 cents on the dollar and cover my costs. If it's simply that the client doesn't want to pay me, I'm not going to take a portion of the money.
"The real key to collections is, don't give up, because in collections the squeaky wheel really does get the grease."
I started a marketing and advertising agency in 1995. Over the years I was able to add staff and build revenues, but in March 2001 things began going from bad to worse. I had to let my people go. Last January things started picking up. I now have an assistant who takes care of all administrative tasks. I'm on track to do $200,000 in annual revenues, mostly from client referrals, but I'd like to take the business to $500,000. I can't really do that on my own, because I'm not good at sales calls. I'm considering hiring a salesperson. Do you think that's the right move? --Jan
"People often think that bringing in a salesperson is a silver bullet -- that you can grow revenues by hiring somebody who seems to know what they're doing and has a lot of relationships on which to build sales," says Jennifer Harrington, who heads up business development at Trinity Communications Inc., a midsize marketing-services firm based in Boston. "But in a service industry, it's a big mistake to hire a salesperson who's not responsible for service delivery. If there's a gap between how they go about selling you and how you actually perform, it can be disastrous.
"I'd hire another person, either midlevel or senior level, who has skills that complement yours and could help with the service delivery, someone who has different relationships that might help advance your business. I wouldn't hire a salesperson. In fact, I'm not sure how you would fill the plate of a full-time salesperson who didn't also help provide services.
"I'd work with the new hire to bring in three or four good-sized accounts and build a solid track record for future referrals. That could easily bring you to $500,000 in business."
For 25 years my business has been applying window film to buildings and cars in Florida. My gross sales are around $150,000 a year, and I have no inventory. (I buy product as I need it.) I work out of my house and even subcontract out the installation. I have lots of loyal customers, which include hotels and building contractors. In the next few years, I'd like to build my business to sell it and retire. I've tried direct mailings and other limited sales efforts with only minor success. Until now I've been most successful with word of mouth and repeat business. Any suggestions? --Bill
"If you've done everything you can to recommend yourself directly to potential customers, the next step is to get somebody else to promote you," says Randy Fields, cofounder of Mrs. Fields Cookies and chairman of Park City Group, a Utah software and services company.
"Figure out who would be your natural allies. Are they automobile dealers, repair shops, window cleaners, or janitorial services? You should create a list of all the alliances you might forge with such companies and either work out a joint-promotion scheme with them or give them discount coupons to give to their customers. Or you could pay them for referrals.
"Showing growth would be the only way that I can see for you to make your company more salable. You're in a highly competitive business, and there are a lot of people who do it as a sideline. In truth, a company like yours usually sells for just one times sales under the best conditions. So it's likely that there wouldn't be much equity to be taken out of your business."
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