Will Your Business Survive These Tough Economic Times?
By: Scott
Richardson
"Mortgage Meltdown!," "Federal Bailouts," and "The Stock Market
Swinging Wildly" - these are today's headlines. It is enough
to strike fear in the heart of the strongest business person.
On a local level, we read about foreclosures, a building slump,
and the inability of people to obtain credit to buy new
homes. This directly affects the pest control industry,
especially those doing termite work. The general urge to
spend less can also have an affect on general pest, which
may be viewed as a luxury, as opposed to a necessity.
This leaves pest control companies with trucks and employees who
may not be fully utilized, with unpaid receivables and clients
cancelling service. So, how do you get through these tough
times? Here are some simple suggestions that are both practical and
based in law.
I. Work Hard -
Service Well
With so many choices for pest control companies to choose from,
and the possibility that someone will have no problem cancelling
your service, consider this: prompt and effective service and
courteous employees become paramount. Do a good job.
Clean up after your work is finished. Maintain a professional
appearance and demeanor. Be price sensitive.
Many companies started charging a gas surcharge, or simply
raised their rates because of increasing gas prices. Recently, gas
has come down in price. Therefore, if you are in a position
to do it, you may want to alert your customers that with the lower
price of gas, you can reduce your charge to what it once was. They
will appreciate you for it. The may even refer people to
you!
II. Don't Be
Your Client's Banker
A simple way to determine if this is a problem is to look at
your total of accounts receivable today as a percentage of revenue
and determine if it has risen from what it was 1, 2 or 3 years ago.
Tough times hit everyone. If a customer has a choice between paying
the pest control company, which is not charging interest, and the
credit card company which is charging interest and may cancel their
credit card, it is less likely that the pest control provider will
be paid. Many companies put their clients on automatic credit
card billing or check drafting, which is a good way to avoid this
problem. Some may give a discount for doing so.
However, on larger jobs we have seen a pattern that is troubling
for the industry. Desperate to get an infusion of cash, pest
control companies bid on post-construction or pre-treat jobs hoping
they will be paid. In some circumstances, you can
exercise lien rights, but our experience has been that by the time
people call us, it is too late. Mark Bogard of our
office puts on Lien Seminars and if you are interested in
learning more, please contact me. The seminar is
free.
Another problem comes where a client fails to pay for the
previous month's service and you are faced with doing more
work. This is a tough call, especially if the person has been
a good client. Which is better, to work a second time and not
be paid, or to use that effort to go out and develop new
business? Because you are not a big bank, a credit company,
or a mortgage lender, there are going to be circumstances where
your bill goes to the bottom of the pile. You need to plan
for this and have a good collection system in place. This may
mean having someone call when a bill is 15 days past due. Do
not wait for 30 days or 60 days. Show them you are
serious. If your client refuses to pay or cannot pay, it may
be time to move on to another client.
At Jaburg Wilk we have experienced collection personnel
that can help you with receivables, from small to large. In
some cases, it may require litigation, and we have the people that
can handle it efficiently. In other cases, it merely requires
a letter from a lawyer demanding payment of a past due
invoice. We have programs where we can help you with these
situations, and we can do so in an economical way. Please
contact me if you want more information. And, remember, look
at that list of accounts receivable and find out how much money is
owed to you that is sitting in someone else's bank
account. If we can help you collect 10, 20 or 50% of
it, how much better will it make your business perform this coming
year?
III.
Be Careful of What You
Guarantee
Everyone has heard that credit is harder to come by, and the
market is tightening its belt. Banks are less willing to loan
money, and a landlord may be less willing to lease premises without
what is called a personal guarantee. Elsewhere
in this newsletter is an article about Personal
Guarantees, which you should read. Understand
that by signing a personal guarantee, you are agreeing that if your
business fails, and if there are no more assets and no more money
coming in, you will be personally responsible for the debt, the
rent, or the payments. We have dealt with situations where
credit card companies have gone after clients for business debts
that were incurred long ago, and given today's economic times, they
are not in a mood to negotiate.
Telephone advertising is another one of these areas where you
may be asked to sign a personal guarantee. Before committing
to telephone ads, understand whether you are personally
guaranteeing the amount, and even if not, whether the ads can be
paid for over the term during which they run. Many of these
contracts have auto-renewal provisions by which it will be renewed
for a period of time unless you timely cancel. Make sure you
mark these on a calendar with one or two, or even three dates to
alert you to the upcoming deadline so that if you wish to cancel
and not incur further obligation, you have an opportunity to do
so.
IV.
Plan For The Better Times
The tough times we face now will turn around. We saw it in
the 70's, we saw it in the 80's, and hopefully in a few years these
tough times will be a thing of the past. Real estate
will again be booming, homes will be built, people will be selling
and buying homes, and pest control industry will maintain the
priority from a health and safety standpoint that it should in the
homeowner's mind. However, as times get better, your key
employees may feel the ability to start their own business and take
your customers. There is little likelihood they're going to
do so now because capital is scarce. However, as times get
better and as a cliental base has been developed through your hard
work and endurance of tough times, they may decide that it is time
for them to venture out on their own. Carefully drafted
employment covenants can mitigate against this. Many of you
have come to us for these covenants and are using them. If
you have not, there is a one-time charge for a simple Covenant
Not To Solicit, which you can use for your employees.
Along with it, we will give you instructions on how to sign people
up to this Covenant.
Then, if an employee signed one of these covenants leaves your
employ, there are certain letters we, or you, should write to them
cautioning them not to breach the Covenant Not to
Solicit. This makes it foremost in their mind as they
approach their new employer, or their new business, or customers,
which may have been yours.
V.
CONCLUSION
These are some general ideas that have come about as a result of
inquiries and problems that our clients face. Jaburg
& Wilk remains committed to the pest control
industry. We understand that these times are tough for
everyone. We stand ready and willing to help you endure them by
collecting your receivables and making certain as these tough times
turn around your employees do not leave with large chunks of your
business.
3200 North Central Avenue
. Phoenix . Arizona