NEWS AND RESOURCES

General Business News for October 2006

Getting Value from Professionals
How many times have you heard "you get what you pay for"? If youíre like most of us, it may be more times than you count, but how often have you taken that philosophy to heart?

Most business owners do a good job of balancing the cost-quality equation when it comes to providing products or services - after all, the reliability of their product has a direct bearing on repeat business. Itís also easier to justify a higher price to a customer who is convinced that the product or service is of superior quality.

How well, though, do you carry over this philosophy to your "overhead" costs? Is price the only consideration when purchasing office supplies or choosing a courier service? Are you willing to pay a little more to make sure you get the quality of goods and services you need to run your business smoothly?

You probably will pay a little more for value perceived on tangible items, but do you feel the same way when it comes to getting professional advice? Are the members of your professional team simply Ďnecessary evilsí and resources of last resort? Do you feel like you will be nickel-and-dimed for a simple phone call? Is it a combination of such factors?

You wonít get much argument here that those phone calls and meetings with advisors can be expensive, but sometimes itís even more costly not to ask for expert advice before you act. Letís look at two examples:

Manufacturer "A" was experiencing a backlog of orders and customers were becoming impatient with long delivery times. This was due, in part, to the companyís decision to reduce manpower during a particularly slow summer season. Managementís solution was to start assigning the remaining employees extra work hours. The overtime amounted to about 40% of normal payroll. On a $100,000 weekly payroll, that added not only $40,000 in straight-time costs, but an additional $20,000 in overtime pay. With payroll taxes included, the total additional costs that would not be recouped by higher sales prices added up to approximately $22,000.

The proposed solution arose at a quarterly management meeting, to which the companyís CPA was invited. The accountant immediately pointed to the increased payroll costs and asked if it was possible to return the furloughed workers and have a 7- day schedule instead of a 5-day work week. The result of paying the accountant $300 for attending that meeting: a savings of $22,000.

Letís take another example. A company carried a business line-of-credit upon which it relied heavily. Part of the security for that line-of-credit was accounts receivable. Generally, banks only count receivables that are less than 90 days old as good collateral and wonít loan against older accounts. Often, the terms of a line-of-credit require that all receivable and other business receipts be deposited into an account at the lending bank. In this case, if violating the terms of the credit agreement allowed the bank to immediately demand repayment of the loan, it could put the company out of business.

As it happened, the company was able to collect a large receivable that had been outstanding over a year. It certainly had not been included as an eligible asset against which a loan could be made. A friend of the companyís owner suggested that the proceeds not be deposited in the company account, but be used instead to finance other business interests. This made sense at the time, because none of the loan was supported by the receivable.

Guess what? The company soon found out it had violated the terms of the credit agreement and that the bank would indeed be within its rights to Ďcallí the loan. After informing the bank of managementís error, intense negotiations took place, involving the companyís lawyer and accountant and a great deal of wasted time. The company finally received a waiver of the covenant violation, but failing to keep its attorney in the loop cost them far more than asking some simple questions at the outset would have.

These examples may sound a bit self-serving, but too often clients come to their accountants and other professional advisors after a deal is done - and expect them to work magic. The time to save money and minimize headaches is before you enter into a transaction. Once a deal is done, the attorney and accountant have no choice but to follow an agreement as written.

While there may be some professionals who will charge for every second they spend on your account, many will not bill you for a short telephone call. The reason is simple - professionals want to know as much about you and your business as they can in order to serve you better. When you feel free to make a short phone call, the lines of communication that professionals covet remain open. Try not to just assume that you will be billed each time you call your attorney, accountant, or other professional advisor.

If you are concerned that you will be billed when you call with a question, ask about fees up front. One way to minimize costs is to establish an agreement as to what will constitute a billable call and, perhaps, working out a retainer arrangement to handle miscellaneous communication throughout the year.

One of the hallmarks of service professions is that they are client-driven. We want to stay in communication throughout the year with our clients. It helps us understand your needs and better serve you and, yes, sometimes those calls can turn into billable engagements, but we, your attorney(s), and other professional advisors are here to give you sound, timely direction that will save you money and foster a good nightís sleep. Ultimately, the best way to get value from your advisers is to use them. If you donít have a trusted adviser, give us a call. We are always here to listen to your needs.

Hereís hoping you can start enjoying cooler weather.

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