Do I have the resources to take these opportunities?

Monday, March 30th, 2009

Dear Norm,
My sisters and I started a bath-and-body company on a shoestring three years ago. This year we’re on target to hit $4 million in sales. We have great distribution, sell to every major department store in the country, and have been approached by Disney, Warner Bros., and others to create private-label products. We’ll soon be entering the mass market under a different name. The problem is that our opportunities are outstripping our resources. What do you advise?

Dear Sara,
I’ll give you the advice I wish someone had given me before I took my first company to $120 million—and wound up in Chapter 11. Your core business must always come first. No opportunity is worth going after if it jeopardizes your core business even one iota. It’s not just about money. You also have limited time. Ask yourself two questions about each new opportunity: Will it keep me from putting in the time required to build or maintain my core business? And, if the opportunity turns into a financial disaster, will my core business be crippled? If the answer to either question is yes, you probably should rethink whether or not this is a good opportunity.
Yours truly, Norm

Permalink  |  Posted in Business Success, Growth

What do I offer my father for his company?

Monday, March 23rd, 2009

Dear Norm,
Five years ago, my father brought me into his company so that he could spend more time doing outside sales. Lately, he seems to be working less and taking more cash out. Once I was told I’d be given the company; now it turns out I’ll have to buy it. I’m thirty years old. I want to grow the business, but I can’t unless we start reinvesting our profits. So it’s time to make an offer. I don’t want to pay too much, but I also don’t want to insult my father with a low offer. Any advice?

Dear Robert,
Before you offer anything, you need to do some soul-searching and life-planning. Where do you want to be in ten years? What kind of life do you want? Then design an offer that will allow you to attain your life goals. Do some research into the value of comparable businesses, and figure out what you can afford. Your proposal should specify how much you’d pay, when you’d start paying, over what period of time, how much salary your father could continue to draw, and so on. You can’t fault your father for wanting to sell you the company. He built it. He has a right to get something for it. But you don’t necessarily have to buy it. In fact, you may eventually decide it’s better to leave. Just make sure you can leave on good terms. Tell your father, “Here’s my plan. I think I can do it if I buy the company from you under these conditions. I love you. I love the company. I’d like to stay. But I need a plan that’s going to let me achieve my goals.”
Yours truly, Norm

Permalink  |  Posted in Ethics, Family, Growth

Will selling to customers online upset our dealers?

Monday, March 16th, 2009

Dear Norm,
We are a $40-million manufacturer, and we distribute our products through 250 independent dealers in North America and Europe. How can we use the Internet to sell products to the end user without upsetting our loyal dealers?

Dear Chris,
I doubt your dealers will be upset as long as you sell at the same price they charge and give them a commission on any sales in their area. In fact, they’ll probably encourage you. It’s trickier if you’re planning to sell your products for less. You’re going to need the dealers’ permission to do that, and you may have to agree to pay them their normal commission on the sales in their area. In any case, the key here is communication. I’d start by sending out a questionnaire to the dealers. Tell them you want to give them an opportunity to make a lot more money by earning commissions on sales over the Internet. Explain how the system would work, and ask them what they think. As long as you communicate properly, you should be all right. If you don’t, you’ll have a problem no matter what you do.
Yours truly, Norm

Permalink  |  Posted in Customers, Dealers, Ethics, Internet

Can I afford to hire an employee?

Monday, March 9th, 2009

Dear Norm,
I have a small business that tutors people in writing. I’ve been running it out of my home as a sole proprietor, using independent contractors. One woman who has been editing for me wants to come on as a full-time employee doing marketing and sales. I need someone to do that. Still, taking her on full-time would be a big financial commitment. She might also generate more business than I could handle. So am I crazy to consider hiring her?

Dear Sharon,
It’s never crazy to hire an employee, provided you have the need and understand the financial consequences. That involves determining the additional sales you’ll have to generate in order to cover the new expenses. To do that, add up those expenses over a period of time and divide by your average gross margin. Suppose, for example, that in the first year it will cost you $39,000 to bring on this employee and make other changes, and your gross margin is 30%. You would then need to increase your annual sales by $130,000 at the same gross margin to cover the new expenses and maintain your current profitability. To reduce the risk, try an experiment. Have her work part-time in sales and continue doing her editing until you both have a better sense of the new arrangement.
Yours truly, Norm

Permalink  |  Posted in Employees, Hiring