Starting a Representative Business: Understanding the Costs and Risks

Authors: Robert Blanding, N.E. “Mac” MacGregor, and Brad Starr, CPMR

So you want to unleash the entrepreneur lurking inside you and start a representative business? Have you thought it through thoroughly? Do you have a plan? Have you considered all the costs and therefore the risks? Before any good builder begins a project, he first lays out a plan and counts the costs lest he run out of money and/or materials and look like a fool. So too does a wise entrepreneur lay out a plan and count the costs before launching a new venture.

What are the cost factors and actual cost items involved in establishing a representative firm? The answers to that question are very complex, but this series attempts to outline those costs and remove some of the guesswork surrounding the cost factors related to a firm’s start-up. Any financial plan must be designed with the costs appropriate for the city, state and/or region where your company is located and the availability of facilities, services and personnel. There are many variables and intangibles. We have attempted to list those factors that should be considered as you plan and implement your new venture.

Cost Factor: Levels of Experience

The costs associated with one’s experience or lack thereof seem obvious, but they defy quantification. The costs of learning on the job vary as much as individual intelligence levels and desire to succeed. Of course, tangible costs can be determined for classes taken, seminars/conferences attended and many forms of continuing education (e.g., to learn new management techniques, improve sales skills, make contact and network with fellow reps, receive training on new software, etc.), but don’t overlook the cost of the time involved.

A representative firm owner needs management (administrative and organizational) know-how as well as sales skills. Possible start-up costs can be estimated via a series of questions about each category of knowledge and experience.

• Do you know how to organize your time when you have 30 balls in the air at once?
• How good are your time management skills?
• Are you proficient in the use of computer software to produce spreadsheets, basic communication (letters, quotes, etc.) and electronic communication?
• Do you understand the administrative and accounting aspects of the business?
• How experienced are you at negotiating contracts, both with customers and principals?
• Have you ever had experience managing people?

Cost Factor: Customers

The variety and scope of your targeted customer base, your knowledge of individual customers and their knowledge of you can all have a significant influence on your start-up expenses. How well do you know the industry in which you want to sell? What is the current economic status of your industry in your territory? Is the future outlook positive?

Do you already have established relationships with at least some of your targeted customers? If not, you’re probably going to invest a lot more time to become known to customers and to land a first sale. Do you have a solid grasp of the needs and issues of your individual customers?

The previous article, the first of a four-part series, is reprinted from the MANA/MRERF (Manufacturers’ Representatives Educational Research Foundation) Operations Manual for Manufacturers’ Representative Firms, which will be made available for purchase on CD-ROM in spring 2003.