Surreal Entrepreneur

Let’s discuss ways that businesses offer credit:

Some will allow for purchase orders, they deliver goods and bill the customer at the end of the month

There are, of course, checks and credit cards

Payment plans and Layaway programs

Title loans and Pawning

These are just a few of the different ways that business will, in good faith, allow the customer to claim ownership of an item or grant the person service with the understanding that money will be paid back in due time.

Lets delve into three of these ways a little further. Firstly, lines of credit are under the same kind of terms as what you think of in the traditional sense of a tab. “Put it on my tab”, this is a flexible agreement between customer and business that the customer agrees to pay down this debt over a period of time that is comfortable and as timely as possible. This is not for the newly acquainted relationship. Please revisit my last post concerning relationships and reducing risk when offering credit.

Secondly, Equity credit. This is a more widely used form of extending credit to customers. In this way, you hold collateral against the money that has been borrowed. The most popular forms of collateral are car titles, which can amply cover the risk of loaning out money or products, because if the person who borrows money or products on credit does not pay, then you get to keep the item that they have left as collateral.

Lastly, Special agreements, concerning credit, are perfect for relationships between to well associated parties. If you trust someone enough you can offer them credit at your store without defined terms and timelines. This is a very difficult relationship to monitor and money might not come as regularly as one party expects, however this is the only type of relationship that is expected between two very well acquainted parties.

While looking at the ways you can offer credit to your customers, it is important to remember that there are always people that are going to try to use your systems against you. Work hard to keep as much leverage as possible while still focusing on customer satisfaction and service. If someone has to ask for credit, it might be because they are going to order more products and services than they can immediately pay off, or it is because they are in a tight monetary spot. Either way you are assuming some risk. work to minimize that risk but don’t count out credit.

Credit is risk. Now that we have established that, a business owner needs to know that this isn’t a Utopian world. There are people that will take advantage of you and take your money as well. Not everyone is a shark, but we have to prepare for customers to have negative intentions so we can treat them as if they were Mother Theresa.

How do we limit risk when considering allowing our store to offer credit?

Firstly, I have had positive and negative experience with Purchase Orders. While some people have been incredibly efficient and responsive with filing the purchase orders with their companies in order to have the money set aside and ready once billed, other organizations and people were lackadaisical and this help up due money for months. This process should only be available to customers that not only have demonstrated the necessity for a long term partnership to show dedication to the relationship, but also have demonstrated the organization and will to get things done efficiently. This should only be extended with a very air-tight contract along with a storied relationship.
Also you as a business owner need to verify that the person you are extending credit to is tied to the region or area that you are in as well. Purchase orders are feasible between separate parties, but being able to knock on someone’s office door and ask for the status of the transaction is more powerful than a re-sent e-mail with a bill.

Lastly it might be beneficial, if you are in the position to do such, to hold the keys to the service, this doesn’t necessarily mean physically. For example, Pandora radio has a subscription service that I pay for yearly. They know that I’ve paid for an entire year, but they extend out a few days past the year that I’ve purchased hoping that I have the intention of purchasing another year. A lot of products and services have the ability for the manufacturer to access the product (online dashboard, computer, tablet, phone, etc) remotely, so the customer’s incentive to pay their debt is the daunting understanding that they could completely lose the use of that product if they don’t pay.

I would like to stress that relationships are the first thing to focus on when deciding to extend credit to a customers. If you have a reason to trust someone, they might just have a reason to pay you back.

I have become increasingly more aware of the necessity for accessibility in this current economy. Especially when a business revolves around non-essential items, a store owner must do everything they can to be the easiest purchase possible in order to retain a customer. To relate this to real world situations let’s take a journey to the last time you were in a small town feeling store. There were wood floors, lots of trinkets and knickknacks everywhere. The place smelled like a melange of different sweet candles and scents trying to emulate a good memory. You pick up a small children’s toy made of wood, thinking that your friends child might enjoy it, as you walk up to the register line you see in bold letters a sign that says “CASH ONLY”. You put the toy down and slowly but confidently walk out the door.

This has happened to me several times. I’m not necessarily a person who buys on whim but I also don’t have cash on me, prepared to the cent, to purchase a specific item. I use mainly a debit card and credit cards to make my monthly purchases. So when a business doesn’t allow me to use my preferred method of payment, I’ll most likely walk, especially if I don’t really need the item.

That being said, there are several topics that deter businesses from wanting to participate in taking cards. Firstly, there is a fee associated with each transaction. Most companies charge anywhere from 2.5% to 3.5% to use their card charging services. There have been some revolutionary advances in these technologies including the easily accessible and incredibly affordable hardware that simply plugs into your favorite handheld media device and instantly becomes a card reader complete with signature. But the terms of agreement can be confusing and one can get trapped into contracts and lengthy agreements. So read the fine print when choosing a card processing service. This is the largest deterrent for small businesses and I would only suggest a product based store that moves enough volume to not be affected by a 3% shot to margin to embark on getting credit card receiving capabilities.

Also this means the money isn’t instantly in the businesses account. It requires a small holding/processing window and a completion of some online claiming to receive the money from accounts.

The last downside is that you have to make sure that the records that you keep for these transactions are very (I mean overly) secured. This is the difference between sinking and swimming. Imagine if a bored hacker was able to acquire all the information of your customers, that could be a reputation and finance disaster.

Once again though, we need to focus on convenience. If someone else is selling the same thing as you, and they don’t have cash in hand but your competitor has the capability to take cards… who do you think will make the sale?

As an entrepreneur this is the most feared headline concerning business. There are certainly some truths to “any press is good press” however, when it comes to the topic of fraud, no press is the best press. While I was working on my first company with a good friend of mine, I was troubled by how much time and money we were spending on security. Now granted, this was a website that did business transactions over the internet, so I understood the necessity for some security. As I dug further down the rabbit hole I realized that it is imperative to not only protect physical assets from theft, but also information about the business, employees and most importantly, customers.

One Saturday morning I was startled awake by a phone call from a toll free number. Now I have made it a habit to entertain myself by playing harmless games with phone sales people, however, receiving a call at 8:15 am on a Saturday morning is preposterous and I meant to chew someone out. Answering the phone in a very perturbed voice I was met with a very to-the-point professional who informed me that he was a member of the State Employees Credit Union staff and that he had seen some suspicious activity on my account and wanted to verify that I had made the transaction. So after I had put him through his paces to test that he was who he said he was, he did the same to me. He then told me that there had been a charge to $4000+ dollars to be payed to a company that I had never heard of. He had also seen this same charge on several other member’s cards and so he was suspecting that it was a fraudulent charge. At any rate, we tracked back through my bill and highlighted any possible matches to previous charges and found out that one company that I had bought a t-shirt for a favorite musical band had been hacked and that hundreds of people had been charged over $4000 each by the person that got this websites customer information.

Needless to say, I haven’t shopped at that site again and I would certainly not recommend it to any of my friends. There are so many ways people are finding to take money from other people. It’s incredible how much a business owner has to prepare for. However, in this situation, it’s safe to abide by Murphy’s Law: Anything that can go wrong, will (sorry if I’m paraphrasing that). We as business owners must not only work to discover what trends are happening that threaten our livelihoods, but we must prepare for it and be proactive to defend against these threats.

A gas station that is part of a chain gets robbed and no one gets hurt, who does this affect? The cashier might be shaken up a little bit. The owner has insurance, so the money is replaced, the police get some excitement, and someone has $300 more in their pocket.

Now what if a small business gets robbed, the owner is most likely the cashier. He or she might fight harder to protect their money, someone could get hurt, the money is not insured and a whole week or two will go into the books with out profit. Two weeks of profit could be the difference between being able to purchase inventory or spiraling down into failure. It is a simple metaphor to illustrate the necessity for being proactive about security and taking measures to put up walls between your money, your customers money, and the bad guys.

On my way to work this morning I was pondering what the implications of me reverting back to a “dumb phone” would be. “Dumb phone” as in not a smart phone, no apps, no internet connection, just a good old fashioned texting, calling phone, with a calculator and possibly brick breaker. It has been about 3 years since I made the switch but sometimes I feel plagued by the necessity to always be plugged in. But I do realize how much more convenient/languid it’s made my life. Now I have the ability to find directions from and to almost any place in the contiguous US. Also I have the ability to directly price shop while looking at one product in a store and comparing prices against hundreds of stores simultaneously. Also, I have the ability to run my own online business from the convenience of the palm of my hand.

Online storefronts are revolutionizing business. Think about purchasing products at a wholesale price and selling them at a retail price, but cut out the rent, insurance, maintenance, sales staff, signage, and store hours. This allows a single person to own and operate a rent free store alone.

When I was 17 my parents extended me my first angel investment loan of $1000. I took this money, established a relationship with a Chinese clothing producer. I purchased a bunch of imitation jackets that were in style and sold them on ebay (as imitation products). I was paying about $31 per jacket including shipping. I was selling these jackets for anywhere between $50 to $270 pushing my total profit to about %150 of what I was initially loaned. Not only was this one of my first real entrepreneurial pursuits  but it has been a lifelong hobby so far, leading to many more sales on ebay and a lot of fun!

Now the negatives can be numerous also. Suppose that you purchase a bunch of products upfront that don’t end up selling and you take a loss. You also have the possibility of your products getting lost in transit. Online fraud and identity theft might plague you. There are a myriad of reasons that Online shopping also might not fit into your lifestyle. Maybe you don’t want to be looking at your phone/computer all day every day to coordinate shipping schedules for sold products. The online storefront is also a little daunting to get into. There are technology barriers to break and also advertising costs can become difficult.

So to wrap up, online storefronts and businesses can be  very useful as a breeding ground for ideas and experience. They allow you the opportunity to start a business for the cost of the website and the products instead of having to turn the lights and water on as well. You can reach a global audience instead of having to do market research and fit your product into just your local community. But it can also be a risky decision if you are not prepared and secure with your transactions. Overall, make sure that this type of business fits into your lifestyle and life goals.

To change gears, lets look at pre-established organizations. Companies with lots of employees, but with lots of room to grow. I’m currently working for a large organization, so I’m going to stray away from making harsh criticisms but I don’t think I can be taken to court for admitting that there is a little bit of a difficulty implementing change in any organization let alone a large one. I’ve come to understand that large companies are set up sort of like a dictatorship,  in the nicest way possible. This is American capitalism at its finest. The fact that one person can run an entire Fortune 500 company under his or her own discretion is incredible to me, and of course I would love to be on the throne one day. However, the system is a little flawed. It completely quells the ability for the new people to be innovative. If someone on the bottom has a wonderful idea, they have to push that idea through layer after layer of approval before the idea catches on and starts to spread. Now this isn’t unlike breaking into a market with a new and innovative idea, however there is an advantage to breaking into the market, if you are backed by money you can launch advertising campaigns to show the world how useful you are. The ability to implement change in an organization is limited only to the rate of communication from the bottom of the food chain to the top. I believe that there are companies that encourage and reward their employees to be creative and innovate, I also know that lazier companies will completely rebel at innovation, because that necessitates action and change, and not many people see the long term benefit to the company as a personally beneficial parallel.

This is an incredibly important thing to learn though, if you are the head of a company, tap into the innovation and excitement of new hires. Forgive their inexperience, but tap into the grains of truth that they bring to the table before they pick up the routine of what everyone else is doing. Also if you are starting in a company, keep pushing using interpersonal skills and networking  in order to further your ideas, because whether it is at the current company or the next one, your initiative will be rewarded.

This is a topic that many small businesses struggle with. We have to consider this from the consumer standpoint as well as the pros and cons for the business owner to truly figure out if it would be more beneficial for a business owner to accept cards or not.

First, what benefits can the business owner see from only using cash. There is certainly a lot less headache associated with cash transactions. Simply one receipt is all the paperwork necessary after the transaction is made. Also there is no transaction fee being charged in order to put that money in the owner’s hands. Adversely the customers that don’t have cash will either have to choose to leave without purchasing anything, or they will have to visit the closest ATM and make a withdraw. We’ve all been in the situation where we’re in the store after picking up some small knickknack and then we spot the sign at the register that says “CASH ONLY”. We then proceed to set the item back where we got it, peruse a little on the way out the door and never look back. This and issue that is hard to overcome when a store owner refuses to make the jump to credit card acceptance. Now on the adverse side, the business owner loses around 3% of every purchase made by card, so if a store isn’t making very many card sales, or the transaction average is really low, this could be a detrimental loss to profit margin.

Another one of the risks of accepting cards is that you will have to figure out how to keep all of that customer information secure. If you are keeping customer information locked up and waiting to bill on a certain day, this could provide a pretty easy target for people who know how to use credit cards for malicious personal gain. Cash only makes you liable for yourself.

We shouldn’t have to discuss online sales, there is no question, you must accept cards.

In my opinion I believe that every business should accept credit and debit cards simply because of convenience, we have to work hard to not only keep customers but also to attract new customers. When a customer is able to walk next door and pick up the same items but they accept credit cards, they will walk next door instead of to the ATM.

“Good will” not the charitable donation center mixed with a store front. This is the sentiment that is associated with the reputation of yourself or your business. As a former salesman, I know for a fact that the idea of “Good will” is alive and well, and can build and sink ships. As I was leaving my job in sales, I’m positive that the GW I had built between myself and several of my clients was strong enough that they would have followed me to another advertising venue if I had chosen to stay in that field. People, in general, do not like change, and they want to feel like they are special to someone. This means that if a business is willing to treat its customers as unique snowflakes, it will build up a huge amount of good will and that will make a business thrive.

Picture that restaurant in your town that is always full of regulars, the waitresses don’t wear name tags but are on a first name basis with most of the patrons. You can feel the good will oozing from the walls in an establishment such as this. Another example, some of you know that I had extremely long hair. I let it grow out for approximately two and a half years. One of the reasons that I let it grow out was because I was selling a certain image, but also, my barber of 9 years retired. I had been getting my hair cut by the same little lady in the same barber shop since i was 12 years old. Interestingly enough, she told me that she was retiring from the business and relinquishing her chair in the barber shop but she still occasionally cut her husbands hair. I would have followed her to another show, or even her front porch if it meant my hair would be cut by the same person, the same way, with the same mindless banter I had grown accustom to over a good will relationship spanning 9 years.

So why is good will so important? Car dealerships thrive on customer service, if one bad review goes out, they could certainly lose more than one sale, but the impact of loosing just one sale could be thousands of dollars. Also, dealerships depend on repeat business. If they don’t provide the proper care and service during the car buying process, their business could crumble within a matter of months. Good will is the culmination of what they try to instill in every customer, by being friendly, available, competent, and fair. Now used car salesmen have a bad rap for being sharks, but an unfair car salesman will not last without forming solid bonds and working with the customer to build a good rapport.

Good will is not limited to specific people, or even sole businesses. I have had really good service at Texas Road House, and I will most likely eat there again when faced with a choice between that restaurant and another comparable entity, because of the good will I have for them. This echoes through most franchises, not necessarily to the personal level of a small business, but good will is transferable from one chain to another. So, understand that customer service and customer experiences will continue after the patron walks out of the metaphorical doors; work hard at making them want to come back.