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How to raise capital for labor costs when sales revenue is dropping

SMALL BUSINESS ADVICE

Traditional sources include loans from friends, family and angel investors, bank loans and factoring.

August 25, 2009|Karen E. Klein

Dear Karen: Sales are down but service calls are up at my firm. How can I fund labor costs with sales revenue dropping?

Answer: Service companies have a longer cash cycle than product-based firms because they pay employees well before they collect invoices. You need to raise capital to bolster cash flow. Traditional sources include loans from friends, family and angel investors, bank loans and factoring. A bank loan is cost-effective but difficult to get today.

Factoring involves selling your invoices to a financing company that pays you upfront, collects your revenue and charges you a fee, which can be costly. Make sure your profit margin can sustain the expense.

Another alternative for business-to-business firms is applying for a secured accounts receivable line of credit from a bank that partners with an accounts receivable monitoring firm. Dan Drechsel, chief executive of FTRANS, one such firm based in Atlanta, says his firm collects accounts receivable and performs credit checks for small firms. This service can also help entrepreneurs qualify for loans under the U.S. Small Business Administration's CapLine program for working capital needs, he said.

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Use e-mail to promote product

Dear Karen: How can I get people talking about my product?

Answer: Collect customer e-mail addresses by offering information or a discount.

"A mistake many small businesses make is to pull in traffic but fail to capture contact information from their customers," said Joan Stewart, a publicity expert at Publicity Hound.com.

Once you compile a customer list, promote your products but don't spam. "Make your e-mails 80% useful advice and 20% promotion," Stewart said.

Start Twittering and establish a company Facebook page. "Build a tribe of followers who care about what you have to say," Stewart said.

Writing articles that tie in to your product and posting them online at sites such as EZine articles.com can also stir conversation about your company.

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How to improve customer service

Dear Karen: Feedback from my customers is not where I want it. How can I improve customer service?

Answer: Do an online customer survey through a site like SurveyMonkey.com. Pinpoint where your customer relations problems are and fix them. You may need training for your employees if they don't get high marks from the public.

Make sure that your employees are helpful and cheerful when talking with customers, said Court Cunningham, chief executive of Yodle.com, an online advertising service. Your company should be easy to reach, so have someone answer telephone calls and e-mails promptly. If customers can't get ahold of your firm to ask a question about your product or service, they will move on.

"For instance, a caller might want an appointment at a time when you're booked," Cunningham said. "Rather than turning the caller away, your employee should inform them about other open times and call them back if their preferred appointment time opens up."

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Got a question about running or starting a small enterprise? E-mail it to inbox.business@ latimes.com or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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