Open For Business
Show Me The Money
By Melinda Ligos

In this month’s installment of our Open for Business series on three start-up distributors, Michaela Raner figures out how to get clients to pay up.

If Michaela Raner had the chance to play good cop or bad cop, she’d always opt to be the good one. “I never like to be the tough guy in any business situation,” she says. But this fall, when some key clients began to get behind in their payments, she found herself having to reconsider her approach.

Raner was accustomed to giving clients 30 days to pay their bills, fronting the cost of goods herself on credit cards. (She says she is unable to get a small business loan.) That seemed to be working until recently, when a late-paying client put her $17,000 in debt in a matter of a month. “I put myself in a pretty bad situation,” she says. After some prodding by her husband, Raner realized that she was going to have to require all clients – no matter how big or small – to pay 50% upfront. And, she took a harder line with deadbeat customers.

“I put my foot down,” she says. Raner solicited the help of a lawyer to track down payments from clients with outstanding bills, “and basically put the fear of God in them.” She also took a hard look at her client list and fired a handful of clients who were frequently late paying their bills. The process, she says, was not an easy one. “It’s difficult when I’m supposed to be the happy-go-lucky sales rep but at the same time be the mean accountant that needs the money,” she says. “But I had to get wise. I’m not a bank.”

Sales for November were over $45,000, $15,000 higher than Raner’s $30,000 per month goal for 2008.

Branching Out
Unlike some distributors right now, Raner is bullish for 2009. Her key growth strategy is looking beyond her backyard in Tempe, where the burst of the housing bubble has really affected business, to find big clients that could guarantee her a steady stream of income well into next year. One of her strong points has always been her ability to work her networking contacts. And that process is paying off. This fall, through a former co-worker at Kinkos (where she used to work), Raner learned about a group of resorts in Park City, UT, that was getting ready to do a promotional blitz in Europe. Raner supplied promotional items for the company, which liked her work so much, they gave her the name of another Park City company that was looking for marketing services. The company, which sells fractional ownership of multi-million-dollar homes, ended up hiring Raner to be their exclusive marketing and advertising agency. As a result, she’s providing all kinds of promotional products, such as robes, slippers, shampoos and towels, to the company for use in the homes. Plus, she’s handling all of the firm’s advertising and print work, including its marketing plan.

Help Wanted
While Raner may not have any shortage of business, there’s one thing her business is lacking: talent. She’s tried a number of different strategies to find labor on the cheap. First, she hired a childhood friend who lives in Oregon to be an independent rep. That partnership quickly failed when the woman realized she wasn’t cut out for a job in sales. Then, over the summer, she hired a former marketing manager for Intel to serve as an independent rep. At first, things looked promising: The woman brought in four new clients to Mack & Jack’s. But then, the arrangement faltered. “She expected me to really do all of the legwork, and for her to make the money,” Raner says.

Unable to afford base pay or benefits, Raner has taken a different tack lately: hiring interns. She reached out to both Arizona State University and Collins College, a local design school, to find graphic artists and salespeople. So far, she’s hired a part-time graphic artist from Collins who graduates this month, along with a sales associate from ASU who works 20 hours a week. Raner pays the graphic artist $10 an hour, and she gives the new sales rep a percentage of any business she’s able to bring in. At presstime, Raner had also inked deals to bring on two more independent reps, including a longtime friend who owns a business magazine in Tempe. “He has a good pool of resources,” she says. In mid-November, the friend brought Raner on a sales call to a chain of nine local rehabilitation facilities that was looking to promote itself to local hospitals. If everything goes as planned, Mack & Jack’s will provide promotional items, such as T-shirts and brochures, to all nine facilities.

While this partnership seems to be working, Raner acknowledges that she’d have more luck hiring good personnel if she were able to offer base salaries and benefits to sales reps. “If everything goes as planned with my business, someday I’ll be able to have actual employees, rather than all of these independent contractors,” she says.

Melinda Ligos is editor in chief of Counselor.

Hiring on the Cheap

When you’re operating a start-up business in a down economy, expense control is often your number-one goal. It’s not enough to sell as much products and services as you possibly can. You also have to make sure you expenses are in line with your revenues – or else you’ll end up in the same trouble that so many entrepreneurial ventures find themselves in.

It’s a situation that Michaela Raner certainly understands. As we’ve followed her promotional products operation during its first year in business, she’s had a constant focus on watching her expenses and finding ways to cut costs and achieve revenue goals without breaking the bank. The strategy has even trickled down to the people she’s hired to work at her company. After an initial foray into hiring some experienced people to work at her company, she now has moved to hiring interns at a much cheaper cost.

“It’s a smart strategy right now,” says Haley Gray, the president of Gray & Associates, a business consulting and coaching firm based in Chicago. “Number one, you have to be watching your costs at this point. But number two is even more important: this way you can get cheap workers who are very dedicated.”

Gray suggests looking to local colleges, or even some high schools, that have intern programs where they can get school credits. “This is often free and the kids who are in the programs are motivated to learn,” Gray says. “They have to do a good job to get the credit they need for school. And they’re also looking for valuable experience that they can put on their resumes.”
To find these students, Gray says distributors should contact their local schools and universities’ field work program coordinators. These are the people who tend to organize the schools’ efforts to place students in local jobs. “The best thing you can do is position your offering as a place where kids can learn the marketing business,” Gray says. “This is a highly-sought-after area by students with communications degrees – of which there are many – so you should appeal to what they’re looking for.”

If you’re going to have somebody do customer service, say so. If you’re looking at them simply packaging items together, call it fulfillment. “Whatever need you’re trying to fill, make sure that you’re presenting it in a way that would interest people looking to gain résumé experience,” Gray says. “Don’t just advertise the job as doing odds-and-ends around the office. Give it a title, like ‘operations coordinator’ or ‘customer service coordinator.’ Make it as appealing as possible to potential job candidates. This is how you can successfully get the kind of cheap labor that won’t impact your bottom line, but will enhance your company’s business.”

When It’s Time to Fire A Client

It’s a decision that all businesses struggle with at some point: When to get rid of a client that’s too much of a drain on your resources. Michaela Raner had to deal with such a decision in her first year in business.

Some clients of hers weren’t paying bills on time and were causing her company to have serious cash flow problems. So, she pulled the plug and fired the clients before the situation got any worse.

“It’s often very difficult for new companies to walk away from revenue, but it can be necessary sometimes,” says John Underhill, chairman and president of U Street Partners, a business consulting and management firm based in Alexandria, VA. “Here’s the way I tell my clients to look at it: If you have a customer that costs too much money to fulfill or who saps your accounts receivable system, then you have to make a move.”

It’s crucial right now, Underhill says, that companies monitor their receivables on a minimum of a monthly basis. “If you feel like you’re entering a cash crunch, then you should be checking your receivables weekly,” he says. “You just can’t afford to let clients go for net 30 or 60 or 90 days right now. Banks won’t be increasing your line of credit and they probably won’t be eager to give you a loan, so you have to depend on your customers to pay on time.”

And those that aren’t should be fired, Underhill suggests. He says the first step in the client-severing process should be a letter from you explaining the situation from your perspective. Whether it’s because of nonpayment or because the client is simply too much effort for minimal return, you should lay out the terms of the situation as you see it. “People are often understanding if you give them some background,” Underhill says. “Tell them the situation and be clear about walking away from the relationship if that situation doesn’t improve in the next 30 days.”

That kind of deadline is vital. And once it’s out there, you have to be willing to stick to it. When you’re investigating your receivables, determine exactly what your cash flow can and cannot handle as far as this client is concerned. If you can let it go another 60 days, then that’s your deadline. If the problem has become so dire that another two weeks is all your financial system can bear, then say so.

“You have to be clear with clients about your intentions and then you have to really be willing to walk away,” Underhill says. “This can’t be a bluff or you’ll lose all credibility in the client-vendor relationship. If you’ve analyzed the financials enough and know that you’re ready to sever the partnership, then you can put the deadline out there. Just don’t be surprised if the client simply says OK. Right now, cash is hard to come by and if they’re not paying their bills, it’s probably for a reason.”

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