Get input before deciding pay terms
Dear Karen: I’d like to hire some sales representatives, but I don’t know how to pay them. Should they get salaries or commissions?
Answer: Rather than developing a compensation package for your sales team, consider allowing them some input. Their participation will create a feeling of ownership for them and increase their “buy in,” said Keith Rosen, sales advisor at AllBusiness.com, an online business guide. “If they create it, they own it, and that will reduce pushback and complaints around compensation,” he said.
The length of your sales cycle is an important consideration, Rosen said. “Great salespeople contending with long sales cycles can have inconsistent cash flow if they’re working for straight commission. This can be tough for a salesperson dealing with fluctuating market conditions and a family to support,” he said, and make it hard for your firm to attract stable professionals.
“Conversely, if you’re dealing with one-call closes or sales that happen within a month, straight commission is very effective and weeds out those who aren’t internally motivated and driven to perform,” Rosen said.
Consider these models:
* Base salary plus commissions. Your salesperson receives a regular salary as well as performance-based commissions. Depending on your situation, base salary can be increased as commissions are decreased over time, or base salary can be decreased as commissions are increased until your salespeople are on straight commission.
* Draw against commissions. Salespeople receive regular advances against future commissions, with a limit on the total advanced. This model can be risky -- if the salesperson quits early, you may be stuck with a commission deficit.
* Guarantee against commission. The salesperson receives a minimum periodic income even if commissions don’t reach that level. This is similar to a draw, but the money paid would not have to be repaid against future commissions.
Credit unions also give business loans
Dear Karen: I’d like an angel investor or venture capitalist to invest $50,000 in my company, but I don’t want to be under that person’s control. Are there other options?
Answer: Most entrepreneurs dip into their own pockets or ask friends and family members to help fund their new business. Most of the 23 million small firms in the U.S. aren’t targets for funding from private investors who are looking for highly promising firms in specific industries that promise large returns on investment.
Another option is to apply for a small-business loan, but you must be willing to put up some assets as a loan guarantee. Many entrepreneurs use home equity loans, although this means risking homeownership if the venture fails.
Along with traditional lenders, such as banks, credit unions also make small-business loans. Credit unions, which are nonprofit institutions geared toward lending relatively small amounts of money, are increasingly giving loans to entrepreneurs.
“The average credit-union business loan is $175,000, which is important to small businesses that often are in need of less than $100,000 in capital and face reluctance from other institutions accustomed to lending greater amounts. Credit union loans can be made for smaller purchases like a company vehicle, computers or even a tractor,” said Mark Wolff, senior vice president of communications for the Credit Union National Assn. “A U.S. Treasury study shows that credit-union business loans have a lower rate of delinquency and charge-off than do equivalent loans at banks.”
E-mail questions to karen.e .klein@latimes.com or mail them to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.
