Check Points

Tips and trends for growing your business.
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12 min read

This story appears in the May 1997 issue of Entrepreneur. Subscribe »

may be wonderful for , but it's also great for crooks. Electronic publishing, scanners, and high-quality color laser printers and copiers have made it easier than ever for forgers to commit check fraud.

Check fraud is a relatively low-risk crime that can be highly lucrative for the perpetrator--but costly for you. Annual losses are in the $10 billion range, and more than 1 million bad checks enter the banking system each day, says Alfonso Guerra Sr., president of Printech, a Miami-based software developer and business forms distributor. Here's how to protect yourself:

  • Store checks in a secure area, and track check numbers so you quickly notice missing checks.

  • Evaluate your issuing process for accuracy. Consider internal and external audits to detect potential risk areas.

  • Reconcile your bank statements in a timely manner.

  • Add security features to the paper your checks are printed on. Guerra suggests using at least three or four security features and including a warning sign on the check that indicates it is protected. Finally, notify your bank of the steps you have taken. "Should the bank pay a check that does not have a security feature you have told them about," he says, "then they are responsible for the loss."

Good Boss, Bad Boss

As an entrepreneur, you wear a lot of different hats--but to your employees, for the most part, you're simply "the boss." In Best Boss, Worst Boss (Summit Publishing), author and speaker Jim Miller shares tales he has collected about bosses over the years and uses them to teach readers how to create a positive working environment.

"Worst boss" stories range from laughable (the tightwad doctor who charges employees 30 cents for personal phone calls) to offensive (the boss who searches employees' desks after hours). "Best bosses" are generous (gifts range from candy to vacations), empowering (encouraging suggestions), and compassionate (supporting workers through personal crises).

The real message, Miller says, is that workers who feel appreciated and respected are more productive and loyal. How your employees feel has a direct impact on the bottom line. Another reason to make workers happy is that competition for good people is fierce. If you gain a reputation as a bad boss, you'll have difficulty attracting the type of people your company needs.

"It's so important to make people feel good about themselves," Miller says. "So many bosses aren't aware they come across the way they're described in the book. I try to get entrepreneurs to be best bosses rather than worst bosses. It's an excellent way to change the workplace."

Keeping The Peace

Could your company be the target of a racial or gender discrimination lawsuit? Smaller companies are not immune--and the risk is rising. The 1991 Civil Rights Act allows lawyers who prevail in employment bias cases to charge double their usual hourly rates and sometimes more. Not surprisingly, discrimination cases are on the increase.

One way to protect your company is to be proactive: Analyze your employees' attitudes, and, if necessary, implement diversity training. Thomas Rundquist, president of Nova Counseling Associates Inc. in Big Rapids, Michigan, has developed a test that can evaluate a variety of biases (racial, ethnic, gender, religious and more). If a problem is identified, Nova can determine an appropriate corrective strategy.

Rundquist's test costs about $1 per person, plus an administrative fee, which ranges from nominal to as much as $3,000 if he handles the setup and evaluation. However, "companies can do most of it themselves," says Rundquist, who adds, "This test is set up so a small company can test its people at a reasonable rate."

Beyond preventing discrimination and lawsuits, Rundquist says testing can also be a defense if you are sued. Test results on file will show whether you had problems and, if so, what you did to correct them. As an additional proactive measure, Rundquist recommends maintaining relationships with organizations that deal with diversity and discrimination issues.

To see a sample version of the survey, log on to Nova's Web site at (

For Whom The Cell Tolls

Combine the consumer appeal of toll-free calls with the popularity of cellular phones, and you've got a marketing technique that's very long overdue: toll-free cellular.

The service, which allows participating businesses to pay the toll and air-time costs of incoming cellular calls, was introduced in the Seattle area in October 1995. Customers dial a four- or seven-digit number preceded by the pound sign (#) and 800, and the appropriate charges are billed to the number being called.

Currently, the only company providing the service is the appropriately named Toll Free Cellular, based in Seattle. "Our market research showed that, when the product or service is similar, brand choice can be swayed by a #800 number about 80 percent of the time," says Lynn Ridenour, Toll Free Cellular's director of marketing communications. That means businesses with #800 numbers have a competitive advantage over those without.

Toll-free cellular also allows businesses to gauge the effectiveness of their advertising, particularly radio and outdoor, since customers can respond immediately. Rates are based on volume. Businesses pay a monthly fee of $19 to $39, plus 28 to 44 cents per minute for the calls.

Incoming cellular calls can be identified in a number of ways, ranging from a distinctive ring to a dedicated line. This allows you to keep air-time costs down by responding to cellular calls immediately and also lets you identify a desirable market segment. Ridenour says cellular phone owners are typically high-end consumers, earning on average more than $60,000 a year. "They're a premium demographic," she says. "Anybody can call an 800 number if they can get to a pay phone, but you have to have a cell phone to make a #800 call, so there's more market segmentation."

Another feature of toll-free cellular: Just as with regular 800 numbers, you can select vanity #800 numbers to make it easy for customers to remember how to reach you.

Toll Free Cellular is in the process of expanding nationwide. At press time, eight markets had been launched: Atlanta; Dallas; Kansas City; Las Vegas; Norfolk, Virginia; Salt Lake City; Seattle; and Wichita, Kansas. For information about when #800 service will be available in your area, call your local cellular carrier or Toll Free Cellular at (800) 266-2125.

Household Name

Looking for ways to reach new markets? Consider private labeling--manufacturing a product that is sold under another company's label.

As a market opportunity, private labeling is significant. For example, the vast majority of store-brand products sold today are manufactured under private-label agreements. And most private-label orders are large, making them attractive to manufacturers.

If you're going to pursue private labeling, it's a good idea to start small. Get comfortable with the process before moving on to larger customers, advises Kenneth L. Newman, president of Kleen Products Inc. The Oklahoma City company manufactures hand cleaner under its own and several other labels.

"Stay as close to your own niche as you can initially," Newman adds. "Private labeling is a good way to get into markets you're not serving, but start with what you're familiar with. You can broaden later on."

Be sure you have enough space to accommodate the process. You'll probably need to store a certain amount of product, as well as the required labeling and packaging.

Work closely with your customers on the actual label. Newman suggests making a checklist of everything that must be on the product--contents, warnings, UPC codes, weights and the like--and giving it to your customer so they can design the label. If there's a potential for the product to be exported, work with your customer to be sure the labeling meets the destination country's requirements.

Keep in mind that private labeling may put you in competition with yourself. But, Newman points out, most companies that purchase products to sell under their own label are going to do so anyway--whether from you or from someone else--and private labeling gives you access to a market share you would probably not otherwise have.

Private-labeling marketing is done discreetly, mostly through word-of-mouth and direct contact with companies that use private- labeling sources. Expect your private-label customers to demand a high degree of confidentiality--and a comparable degree of quality. "Don't cut corners on your private- label products," Newman advises. "They need to have the same quality as the products you market under your own label."

Passing The Buck

is great, orders are pouring in, but you lack the cash to meet the demand and you can't get a loan because you haven't been in business long enough or don't have collateral. Your solution? Factoring.

One of the oldest forms of business financing, factoring--selling accounts receivable to a third-party funding source for cash--is the cash-management tool of choice for many companies.

In a typical factoring arrangement, the client (you) makes a sale, delivers the product or service and generates an invoice. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay you the invoice's face value less a discount--typically 2 percent to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when your customer pays.

Because factors extend credit not to their clients but to their clients' customers, they are more concerned about the customers' ability to pay than the client's financial status. That means a company with creditworthy customers may be able to factor even if it can't qualify for a loan.

Once used mostly by large corporations, factoring is becoming more widespread. Still, plenty of misperceptions about factoring remain.

Factoring is not a loan; it does not create a liability on the balance sheet or encumber assets. It is the sale of an asset--in this case, the invoice. And while factoring is considered one of the most expensive forms of financing, that's not always true. Yes, when you compare the discount rate factors charge against the interest rate banks charge, factoring costs more. But if you can't qualify for a loan, it doesn't matter what the interest rate is. Factors also provide services banks do not: They typically take over a significant portion of the accounting work for their clients, help with credit checks, and generate financial reports to let you know where you stand.

The idea that factoring is a last-ditch effort by companies about to go under is another misperception. Walt Plant, regional manager with Altres Financial, a national factoring firm based in Salt Lake City, says the opposite is true: "Most of the businesses we deal with are very much in an upward cycle, going through extremely rapid growth."

Plant says you may be a candidate for factoring if your company regularly generates commercial invoices and you could benefit from reducing the time receivables are outstanding. Factoring may provide the cash you need to fund growth or to take advantage of early-payment discounts suppliers offer.

Factoring is a short-term solution; most companies factor for two years or less. Plant says the factor's role is to help clients make the transition to traditional financing.

Factors are listed in the telephone directory and often advertise in industry trade publications. Your banker may be able to refer you to a factor. Shop around for someone who understands your industry, can customize a service package for you, and has the financial resources you need.

Eye Spy

Can an extra set of eyes in the form of video cameras be an effective loss-control measure? Yes, says George V. Clegg, senior special agent with Wells Fargo Bank in Salt Lake City. Video surveillance provides evidence if an incident occurs and also serves as a deterrent to would-be thieves.

"A video picture makes or breaks many cases," says Clegg. "I've had some very successful prosecutions because I've had good pictures." It's not unusual, he adds, for perpetrators to deny a crime until they're shown the video.

If you decide to install a video surveillance system, make it clear that no one is under suspicion. "Explain that this is for everyone's protection," Clegg advises. The camera will not only record crimes committed by outsiders but also document employee actions. The latter can be both a prosecution tool and a defense if an employee is wrongly accused.

Tapes can also be used to resolve workplace disputes, customer complaints and even negligence charges. Clegg recalls one situation where an employee claimed harassment, and a review of the videotapes supported the charges and allowed management to take immediate action. If a customer complains about conditions or service in your facility, or if there is an injury, videotapes offer an unbiased view that can tell you what really happened.

Whether your cameras should be hidden or obvious depends on what you are trying to accomplish. Obvious cameras are a stronger deterrent, but sometimes a hidden camera may be necessary to solve a specific problem.

Clegg advises setting up a tape storage system so you can review tapes if necessary. If you begin to notice a loss pattern, for example, you may want to look at tapes from the past few weeks or months for clues.

has made video surveillance increasingly affordable. Clegg recommends consulting with several security system vendors before making a decision. And if you're unsure of the value of such an investment, Clegg makes this point: "If you have one major loss or one person injured and you have the tape as evidence, it pays for itself."

Contact Sources

Altres Financial, (800) 531-0137, fax: (800) 390-1242;

Jim Miller Enterprises, P.O. Box 200997, Arlington, TX 76006-0097, (817) 640-2403;

Kleen Products Inc., (800) 392-1792, (405) 495-1168, fax: (405) 495-1175;

Nova Counseling Associates Inc., 1724 N. State St., Big Rapids, MI 49307-9749, (htpp://;

Printech, 8402 N.W. 64 St., Miami, FL 33166, (305) 592-2838;

Toll Free Cellular, (800) 266-2125,;

Wells Fargo Bank, (801) 350-7250.


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