This method doesn’t work 100% of the time, however, as my father always told me, “If you don’t ask you never know what you can get.” So let me clarify what I mean. In the last few weeks as I’m negotiating for various purchases twice I’ve called up and asked one person for a great deal. Twice that person didn’t give me the deal I wanted. Twice I called back and got the deal I did want from someone else in the same organization. One time it was even in the same day. Let me explain…

When I was ordering my Sonos, I of course wanted the best deal possible. Heck, I’d been waiting for 2 years, 9 months, 12 days, and 6 hours for the right deal (maybe not exactly that long), so if I was going to bite the bullet I was going to make it worth it. So I emailed my contact to find out if I ordered the bundle with the free speakers along with another zone player if they’d throw in shipping for free. He said no can do. Oh well. I wanted it anyway, so I call to place the order and talk to someone else and ask again. She throws in the shipping (on the extra zoneplayer only) for free along with a free cradle for the controller (which I didn’t even ask for). Yes! Good thing I didn’t just ask the first person and assume it couldn’t be done…

Second instance was working with the Colorado Department of Revenue. They assessed some late charges and penalties that weren’t correct. My payments were postmarked on the proper day and after calling them all I had to do was mail them a letter requesting them to review the file and pull a copy of the envelope with the postmark on it…. But I forgot to write down the address to where I was to mail the letter. So I called back, talked to another gentleman and he said “Don’t worry about it, your account has a zero balance now. I took care of it.” That time I don’t even think I asked. He just volunteered to take care of it for me. Nice.

The third instance I was working with Paychex and they wouldn’t talk to me cause I wasn’t the “authorized” person on the account. Didn’t really matter that I owned the business they were servicing, they wouldn’t talk to me. So I hang up, call back and before they could even ask me who I was, they said, “Sorry Bryan, we need to talk to X or Y.” Well needless to say when they now call me for sales calls (since I cancelled their service) I make sure they know I’m not the authorized account holder.

So the moral here is, if at first you don’t succeed, try, try again.

To your negotiating success, Bryan

The generation of consumers who purchase a considerable amount online or who at least research everything online before buying is growing. Supposedly over 50% of Americans research online before making a household purchase. Approximately 100% of my friends do. Obviously these types of purchasers are only going to increase. Yet it seems many brick-and-mortar businesses, like my own, have trouble both understanding and selling to this new wave of consumer. Here are a few lessons you need to keep in mind when designing your website or responding to email inquiries from the internet generation.

The traits of internet consumers:

1. Prefer to negotiate via email
2. Always looking for a great deal
3. Will wait patiently for the right deal
4. Consider ourselves to be well-informed
5. Expect a Guarantee
6. Have little problem purchasing something site unseen (and can even prefer it)
7. Require Testimonials

And now the nitty-gritty details of each trait…

1. Prefer to negotiate via email – There are a few reasons for this. We don’t want to be “pressured” by a slick-talking salesman. We like to take the time to reflect on the emails we receive to do additional research on competitors, pricing, specifications etc. before replying.  Sometimes we just don’t like the human interaction. We work best at 1:30am when your office is closed.

2. Always looking for a great deal – A quick example of this is my method of purchasing anything that takes batteries or requires a plug. For me, 90% of those things I purchase online. Once I determine the exact product I want (after exhaustive research) I check prices with Tigerdirect.com, Newegg.com, Buy.com, and Froogle.com. If a vendor shows up on Buy.com or Froogle.com who I’m not familiar with, I check it out on ResellerRatings.com. After all, the lowest price doesn’t really help me if it’s a shady business and never actually send me anything. This whole process takes me less than 10 minutes, usually less than 5. Moreover, I’m on mailing lists from the first 3 so that when a super special comes up, I know about it right away. We internet shoppers are trained to get the best price, for the best product, along with the best service EVERY time.

3. Will wait patiently for the right deal – There are numerous examples of when I’ve done this, however just last week I made a purchase of an item I’ve been watching since January 30th, 2006. That’s correct, I waited 2 years and 9 months before pulling the trigger. Was it because the product improved or because I suddenly came into a bunch of cash that was burning through my wallet? No. I was just waiting for a GREAT deal. After 2 years of waiting for that deal and trying to negotiate one out of them I was starting to think it wasn’t coming…  Then low and behold they send me an email saying if you buy a sonos bundle in the next 3 days, they’ll throw in free speakers (about a $180 value). Yes! I jumped on it and swear that my sonos is the coolest thing ever. Even better then my $320 sunglasses… Which I only paid ($160 for) but we don’t need to get into that. Keep in mind, the right deal does not necessarily mean we’re cheap. Check out Sonos.com and you’ll quickly learn that to replace my “antiquated” wireless music system that I paid $80 for 2 years ago with a Sonos (that essentially did the same thing but with a whole lot more features) I forked over $1300. (But I got $180 worth of speakers for free! What a great deal!)

4. Consider themselves to be well-informed – Whether they actually are an expert in car maintenance, replacing a roof, or accounting, they’ll think, because they read a few blogs, that they are. So don’t ignore that. Ask them questions about what they want, need, have researched, and are looking for to fish out exactly what they know so you don’t offend them by telling them something they think is brilliant is not. If you do make the mistake of inadvertantly calling something we read online stupid, we won’t call you on it, we’ll just assume you’re an idiot and should spend some more time learning about your trade. Be prepared to answer tough or even outlandish questions.

5. Expect a Guarantee – Let’s be honest here, we internet consumers are a very trusting bunch. WIthout seeing your office, you, or even your product we’ll fork over some money for the item we’re looking for. However, don’t mistake that for stupidity. The BEST internet marketers always offer a guarantee. Some of them are price match guarantees. Some are 30, 60, or 90 day trial guarantees. Some are 110% satisfaction guarantees. The list goes on and on and the type of guarantees they offer are much different than the ones we in the brick-and-mortar world are used to… I’ll write another blog focussing solely on creating a great guarantee to clarify this point further.

6. Have little problem buying something sight unseen – and often prefer it that way. Reference point 1 regarding email negotiations. We’re smart, informed, know where to get the best price, read all the online reviews of your business, and like your guarantee. Why do we need to talk to someone? This is where your website needs to fully understand the mind of the Internet Generation. If you’re selling a service or product that requires an onsite evaluation, inspection, analysis, etc. your website needs to sell that appointment! It should not be trying to sell your product because we can find that product (whether it’s exactly what’s needed for our situation or not) 100 different places online. By you requiring and selling the appointment you’re differentiating yourself from everyone else who says just give us money for this one-size-fits-all item.

7. Require Testimonials – We will NOT buy something online without reading and reviewing several testimonials or objective reviews of your business and your product. We’ve been sold by radio, TV, internet, billboards, direct mail, telemarketers and who knows what else our whole lives. We don’t buy that “Trust us we have a great product” crap. Unless several credible sources post positive reviews about a product or service we’re moving on to the next thing. Check out Amazon.com, Cars.com, Cnet.com, Newegg.com, Ebay.com etc. etc. etc. All major online retailers offer customers the ability to review products they’ve purchased to help prospective customers make the best decision. We’ve been trained to only buy things with great reviews so if your website doesn’t have any objective reviews or testimonials then forget it.

In summary, we are not the same type of consumer most businesses are accustomed to. Our requirements are different and expectations are higher. You (and your website) can decide to ignore our nuances… Or you can address them before your competitors and open up your business to a huge, constantly-growing market.

To your success, Bryan

In my office I have 2 young, inexperienced girls who help me. They both have wonderful personalities and great phone voices and, though they’re not perfect, they seem passionate about their jobs and eager to learn. One girl’s responsibility is to help me grow the business, the other is to help me cut expenses… At this point I’m still trying to determine if I’m better off employing people who I can train from the ground up, as The E-Myth Revisited suggests, or if I should hire the best people and pay accordingly, as many business owners suggest.

However cutting expenses isn’t as “straight-forward” as one would expect. If you had to explain and train a 19 year old with no experience on how to manage the payables, purchasing, inventory and cashflow for a business employing 13 people what would you teach them? How would you teach it?

These are the questions she needs to consider every day:

1. How can we improve Profits?
2. How can we improve Cashflow?

So let’s explain the difference between profits and cashflow first.

1. Profits – Profits are an income statement or financial and tax reporting number. They don’t have a direct influence on if you can pay your bills or when. This number simply tells us if you sold more then you spent.
2. Cashflow – This is money or cash you have available to spend. In other words, cash in the bank.

A quick example to illustrate the stark difference between profits and cashflow and why both need to be addressed is this: If I can order 100 widgets at a 10% discount and I ultimately sell all 100 widgets, then I just increased my profits 10% by cutting expenses. However if I order 100 widgets at a 10% discount and it takes me a year to sell them so I didn’t have the cash to pay the bill right away, the late charges and finance charges may out weigh the 10% discount. Or let’s say they only gave us a 3% discount, I could have put that money in a money market fund for the next year at a higher interest rate then 3% and been better off.

OK, so how do we systematize and simplify this concept? We created a spreadsheet listing all of our vendors along with the following columns with information: Vendor, Terms, Discount Terms (i.e if it’s due in 30 days but we pay the bill in 10 will we get a discount?), Late Fees, Finance Charges, Grace Period, Finance Policy.

That simple spreadsheet tells her, me, the person who replaces her if she quits, my business partner or anyone else who looks at it exactly who we need to pay and when. In other words, if cash is tight, we simply reference the spreadsheet to determine which bill we pay first and which ones we can pay late and with the “Finance Policy” we can even estimate who may credit off finance charges if we call and negotiate.

The “Terms” tell us about our cashflow options and the “Late fees”, “Finance Charges” and “Discount Terms” let us know how the vendors’ policies will affect our profits. It’s simple and straightforward, however it does take some work to collect all of this information from all of your vendors.

Keep in mind, your vendor may tell you something that experience tells you is not true. For instance, MOST billing systems where you are sent an invoice have a set term in days, however they don’t actually apply late charges until the end of the month. So you may receive an invoice on 10/25 that says Net 15. The invoice says it’s due 11/9 and that late invoices will accrue a finance charge of 1.5% per month. If you call and ask the vendor, they’ll tell you it’s due 11/9. However what that generally means is as long as you pay the bill before that company “closes their billing month” (which could vary from the 25th to the 31st of the month) you won’t be assessed any finance charges. In essence that mean the bill isn’t due until the end of the month.   In our spreadsheet we know which customers to pay exactly on the due date and which to pay before the end of the month because of the “Grace Period” field.

With QuickBooks Pro 2009
this process becomes even easier. You can setup custom terms along with applicable discounts so that when you put in the bill, Quickbooks automatically knows, and applies, your “Early Payment” discounts for the vendors who offer them. This is possible whether you receive discounts by paying exactly within 10 days from invoice date or if you just have to pay before the 10th day after the month-end in which you recieved the invoice. The custom terms in Quickbooks is quite powerful. It’s main limitation, and the reason for the spreadsheet, is you need to know the “Grace Period”, if any, as well as the “Late Charges”, “Finance Charges” and “Financial Policy”. You could probably put that information in the notes field on the vendor’s account but quickly referencing the spreadsheet seems to be easier.

In addition to the information and concepts I need to teach to my impressionable payables person, there are a few concepts that just my accountant and I need to understand. Those are the expenses I must depreciate and the goodwill I can amortize. Depreciation can either help with profits and hurt cashflow or hurt profits and help with cashflow. First off, helping or hurting your profits depends on whether you’re talking with your banker or the tax man. If you’re talking with your banker you obviously want to show lots of profit however with the tax man you want to show very little. Granted, we need to be honest, upfront, and ethical with both if we want the best for ourselves and business. Your banker will often look at EBITDA so that your non-cash expenses won’t hurt the “profits” they consider, but they’ll also look at your cashflow statement. Depreciation is usually a negative against your cashflow initially and a positive near the end of a product’s depreciable life. For instance, you may depreciate a computer over a number of years, however you need to pay for it all upfront. Since you have to pay for it immediately your cashflow is hurt. Yet, it’s now paid for so in a year the bills are all paid, but you can still take the depreciation expense on your books to minimize your profits and which helps minimize your tax burden. As a general rule, you expense everything immediately and forget about depreciation! Why? Because taking the immediate expense will help your cashflow by decreasing the taxes you’ll have to pay on your profit. There are exceptions…

Without going into a lengthy explanation of amortization, the rules are relatively the same as depreciation. The primary difference being that amortization NEVER effects cashflow. Amortization is simply an accounting number that has no bearing on your actual cash investment. I know accountants will disagree with me on this because they say it represents the difference between what you’ve bought something for and what it’s worth so your amortization deduction is equal to the cash you paid out of pocket. This is only true if you used your own money to buy the business. But why would you do that when 65% of businesses are sold with some sort of vendor financing?

For some more specific ideas on the ways your payables person should be improving cashflow check out my other blog.

To your success, Bryan

If you’d like a copy of the spreadsheet email or comment.