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A growing number of people
in business want to strike out on their own. If you do, you'll be entering
the world of free-agency, a new term to describe the growing entrepreneurial
sector of today’s workforce fueled by technology that allows more people
to work out of an office setting. But there are many things to consider
before you make such a move. Health care and other insurance benefits
provided by companies, for instance, can be expensive for self-employed
individuals. And the ability to maintain a constant flow of work becomes
more difficult for independent workers. It’s always good to talk with
people who have made such a transition to get their honest insights
before making your decision.
Getting Paid
If you run a small business, sooner or later, you're in the collection
business. MWorld sought the advice of some conventional (and not so
conventional) experts on how to get clients to pay up and what to do
when they don't.
Collecting on the front end:
- The 20-80 Business Rule. Dr. Kathleen Allen, author and professor
of entrepreneurship at University of Southern California, says the
best way to ensure prompt fee collection is to track the aging of
accounts. "If you have customers that double accounts payable days
and 60 days gets stretched to 90 or 120, you're losing money and you're
better off without them. It boils down to the 20-80 Business Rule
-- 20% of your customer base provides 80% of your revenue. In the
long run, it’s more profitable to have fewer clients who pay on time,"
says Allen.
- Keep contracts fair and simple. Joe Beatrice, president and
CEO of NYC-based new media company Blue Dingo, believes less is more.
"If a contract is too protracted, you get into the 'what ifs' that
can damage the client relationship. Stick to the basics and include
terms of service only," advises Beatrice, who cautions entrepreneurs
not to pull any punches. "If the customer is responsible for mark-up
costs or out-of-pocket expenses, let him or her know upfront -- most
clients don't like surprises," says Beatrice.
Another precaution Beatrice takes to ensure
that the client and agency "are on the same page" is providing a contract
of expectations. "That way the client has a clear picture of agency
deliverables."
- Watch accounts payable. "Even sole proprietors should get
a part-time temp or intern to handle accounts payable," advises attorney
Joel Struttman of J.S. Struttman, White Plains, N.Y., an expert in
communication and collection law. "We've seen over the years the single
most common reason businesses have problems is they don't exercise
control over accounts payable. Invoices pile up, and when people let
debt go too far, the debtor either goes out of business or can't pay
because the debt has become too big." Beatrice has his CFO work with
accounts payable for major clients because, as he puts it, "If the
debt gets out of control, it can easily damage the delicate business/client
relationship."
Collecting on the back end:
If you've taken the necessary steps to assure swift payment and clients
still don't pay, try the following:
- Arbitrate first, negotiate second. "It’s generally less expensive
to go before an arbitration board than to take civil action," says
Beatrice, whose company spent several years and six figures suing
a client only to win in court but never collected a dime. Today, Beatrice
negotiates first but recommends doing the math. "First evaluate what
it'll cost to litigate vs. what you're willing to settle for, and
then reach a compromise."
- Hire an attorney. If money owed is substantial, your only
recourse may be the courts, "but not without prior notice," advises
Dr. Allen who says business owners should send progressive past due
notices starting at 10 days past due, with a final 60 days past due
notice stating the account will be turned over to a collection agency
or attorney if payment is not received within 15 days. If you do go
to court, Struttman advises the following: "Get receipts, document
efforts, keep purchase orders, file invoices and have personnel sign
off on all delivery of goods. Lawsuits sink or swim based on good
record keeping."
- Use the light touch. Former attorney-turned-humor consultant
Malcolm Kushner says it pays to try the unconventional. "An attorney
I know increased his collection rate by 15% by sending humorous drawings
of cats to late-paying clients. The etchings showed several cute cats
and a picture of a knife. The copy said, 'I am going to knock off
a cat a day until you pay.' What the mailing accomplished was to get
the debtor’s attention without alienating him or her. It moved the
invoice to the top of the pile."
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Health Coverage
Here are some steps for navigating the confusing -- and costly -- health
care waters:
1. Join an industry association or union or
check out the Home Office Association of America (HOAA), a membership
organization open to all self-employed home office workers. By drawing
on a large member base, HOAA can offer the self-employed health coverage
in an HMO plan with Aetna at comparatively reasonable rates in the $200-$300
range. But buyer beware: it pays to read the fine print. Rates vary
by state. You also need to be sure your primary care physician (as well
as any special care physicians you see regularly) subscribe to Aetna.
Which brings us to Step 2:
2. Find your own carrier, but first call your primary care physician
and specialists to determine which insurance carriers (HIP, Guardian,
Prudential, Blue Cross/Blue Shield) offer benefits for individual and
HMO coverage in your state.
3. Check out spousal benefits (clearly the easiest and cheapest route),
and if you've recently left a company with 20 or more employees, the
federal government’s COBRA law allows you to continue your insurance
coverage for 18 months after leaving an employer for a nominal monthly
administration fee.
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Hiring Outside Professionals
With outsourcing, hiring outside professionals is no longer the exclusive
domain of big business seeking a flexible and nimble workforce. "It’s
a way for small business to level the playing field," says Frank Casale,
executive director of the Outsourcing Institute, a trade group based in
New York City.
The biggest benefits of outsourcing? Flexibility and instant expertise
top the list, followed by lowered costs. Additionally, hiring outside
consultants helps small companies compete in a tight labor market and
alleviates the stress of meeting last-minute deadlines.
The downside of outsourcing? Professional contracts are often written
for a minimum of 18 months; a long time to incur cost for a professional
not performing up to par. Also, quality control can be an issue, so you
need to track your vendor’s performance to ensure the work’s getting done
not only on time, but up to your standards.
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Sell to Callers on Hold
If your new business will mean lots of phone calls, don't lose an excellent
opportunity to sell to callers. If they have to wait for a brief time
before you or another can handle their call, use that time to let them
know more about your business or one or more of the products or services
you offer. If you want it done well, you may want to contract to have
the script and music done by a firm specializing in creating such messages.
Entrepreneurs who use such messages argue that not having them is equivalent
to "having a blank billboard on your property."
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Create Your Own Database
You know you have the beginnings of a database with all those prospective
client cards you picked up at the last trade show you exhibited at. With
simple software, you can create a mailing list that allows you to easily
mail newsletters or product information. Better yet, if the cards contain
e-mail addresses, you have the beginnings of e-letters you can send to
customers about business developments.
The secret of creating such a database is not getting the software. Rather,
it is seeing that information from each and every customer goes on your
ever-growing database.
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Evaluate Your Entrepreneurial Success
We all are familiar with the need for business plans. But do you know
what a backdating plan is? It is a plan that works in reverse of a business
plan. You start at where you want to be in, say, five years, and work
backward, filling intermediate goals along the way. Why would you need
this? Once you have a goal, you are better positioned to plot the steps
you will need to take to reach it.
Backdating can be done in any time increment you want. As you start your
business, you should have at least a one-year backdating plan that you
review regularly. It’s a valuable tool to measure your new business’s
growth.
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