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Comparing Angel Investors With Bank Loans … and More of Your Questions for March

Plus, the very first thing you should teach a new salesperson.

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With the economy rebounding, this seems like a good time to expand. I’m thinking of taking money from an angel investor (about $150,000) in return for a share of profits. Is that a good idea or would it be better to get a bank loan?

Small investors can have unreasonable expectations, which will cause all kinds of headaches down the road, says Greg Crabtree, a CPA and author of Simple Talk, Straight Numbers, Big Profits. He recommends you start by looking to see if this person is accredited as an angel investor, and how they handle the ups and downs of business. “You need partners who are going to be patient long-term investors, or you have to be patient and grow only at the rate of your profitability increase. Take your pick because they are your two choices,” he says. As a general rule, Crabtree recommends “other people’s money” as the funding source of last resort. If, however, you do decide to go with the angel cash, document your investor’s expectations and hire a lawyer to draft your shareholder agreements as there are endless lawsuits because no one set clear expectations. “Legal documents will not prevent a dispute, but they will speed up the resolution of the dispute,” Crabtree says. The best approach, he says, is to take no salary and live off your savings and let your sweat equity build capital in your business. “Then pay yourself a market-based wage when your business reaches 2-3 percent pretax profit. Pulling money from savings creates focus.”

A competitor used our name in one of their ads. Can we sue?

Not so fast. If they are just asking the consumer to compare your services or goods, then you don’t have much of a case. In fact, the law actually encourages it. The Federal Trade Commission, for example, has specifically sanctioned comparative advertising, because of the benefits it yields to the consumer by assisting purchasing decisions. Of course, they can’t make false statements about you or confuse potential customers by piggybacking on your goodwill and reputation to the extent that customers are confused about which company is the source of the good or service. As for a strategic approach to such situations, the general rule is never respond to a challenge from a competitor smaller than you. You merely draw attention to them and make them look larger in the eyes of the public. Conversely, if someone bigger than you is foolish enough to shine their spotlight on you, dance in it.

What’s the first thing to teach a new salesperson?

That they don’t have to give away the farm to close the sale, says Hal Becker, co-author of Can I Have Five Minutes of Your Time. Drum into their heads, that once they’re fighting on price, they’ve lost the longer battle.

Becker offers these tips to help your young sales associate:

• Listen to the customer and do not interrupt. People love a good listener. Besides, what you blurt out could hurt you.

• Ask questions. Any question. It gives you control of proceedings.

• Have great eye contact and smile. A pleasant demeanor shows sincerity, and people like to deal with people they like. Direct eye contact shows you have an interest in the customer.
• Learn to love silence. Sometimes you say more when you don’t talk, and you give the customer a chance to say “yes.”

• Learn to paraphrase. Restating what the customer said shows you’re listening, and gives you an extra moment to think.

• Speak clearly and slow down your speech. It’s human nature to distrust a fast talker.

• Finally, do your homework. Good intelligence allows you to execute a better attack.

Any advice on employee discounts on repairs?

Industry repair pricing guru David Geller says that when he owned a store, he allowed staff to buy shop services at 10 percent above cost, which was actually below real costs (Geller says that because he paid his jewelers 100 percent commission he knew his actual costs, something a lot of jewelers can’t say). If an employee wanted a piece of jewelry made from their own design, Geller again charged them 10 percent above cost and allowed them to pay over six payroll periods. “It’s a good perk,” he says. “We wanted them to be able to flaunt the idea of ‘jewelry artisans made this for me!’” when they come into contact with potential customers.=

Over the years, INSTORE has won 80 international journalism awards for its publication and website. Contact INSTORE's editors at [email protected].

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