In the next two blog posts, I'd like to dive into the issue of vendors - how they work, what to expect when working with them, and how to avoid being taken advantage of.
Vendors are companies that sell goods and services to your company. These range from alarm companies, garbage pick up, produce suppliers, papergood suppliers etc. Each one of them has a different set of dynamics and issues.
The goal of this paper is to give some insight into how to deal with vendors, what to expect, potential pitfalls and how to get the most out of them.
A couple things to take into consideration when dealing with Vendors:
1. Everything is negotiable. We, here in America, are programmed to accept all prices that are given to us. WE have very few opportunities to negotiate anything, thus we are not very good at it at it. But remember - with just about any vendor, prices, services, terms and conditions - all is negotiable. AND just because you agree to something once, it doesn't mean you cant change your mind later! So, if they come to you with a 5-year contract, you can simply say 'no'.
2. The cheapest alternative will often cost you more in the long run. Better to go with a reputable vendor that wont mess with you than go with the cheapest. The cheapest bidder will usually under bid to get your business, then jack up your prices or find other sneaky ways to extract more money from you. You end up spending a crazy amount of time just managing these guys and checking up on them to be sure they arent playing pricing games with you (which is just another form of expense). Not worth the effort!!
I once had a dairy provider who liked to screw with my prices. Dairy is unique, because prices fluctuate quite a bit with market prices. His favorite thing to do was to track market prices on the way up, and only partially track them onthe way back down. EG -
week one: market prices increase 10%, his prices would increase 10%.
week two - market prices decrease 8%, his prices decrease 5%.
week three - market prices increase 5%, his prices increase 5%.
week four - market prices decrease 10%, his prices decrease 8%
Before you know it, you are paying 20-25% above market prices... if you are not carefully tracking prices vs. market prices, you will end up paying WAY over market.
I once had another vendor (a general food vendor) who also enjoyed messing with me. Every week, we were ordering 20-30 items from him. Every week, he would choose one or two items from the list, and bump up their prices 4-5%. It was so subtle, that I did not realize it was happening. When I did notice, it was usually just one item on my long list of items, and it only went up 4-5%, or maybe $5. When you are paying $800 on an invoice, you tend to shrug off a $5 increase. It wasnt until about a year later when I was doing some price comparisons that I discovered what this guy was doing.... by then, my *weekly* invoices were up by almost $200!!! Needless to say, I dropped that company pretty darned quick.
The lesson learned? - go with honest vendors. You might spend a bit more up front, but it is worth if if you dont have to constantly check up on them and waste your time.
3. Always get multiple bids - and give yourself plenty of time to get multiple bids. IT takes time to do this, but definitely worth it. You will get a better understanding of the lay of the land, the issues and the players.
4. The *person* you work with (ie - the salesman at the specific company) is almost as important as the company you choose. There is a guy who works for one of my Vendors (Perkins - now Gordon Foods) who is just awesome. He never messes with me, never jacks up my prices, gets back to me immediately when I need something.
5. READ THE CONTRACT CAREFULLY. Often times, these salesmen will hand you a contract to sign and want you to sign it there and then. DO NOT do this. Take the contract home and read it carefully, highlight the parts that dont make sense, or cross out the parts you *dont* agree to (and initial those parts). You are absolutely allowed to alter any contract that you dont like. You would not believe the sort of stuff these companies write into their contracts that almost no one ever reads. NO matter what the salesman says, if it is written in the contract, they will try to enforce it - no matter how onerous. I've had these salesmen tell me "oh, this is just boilerplate contract speak - no one every actually enforces it!"... yeah, right. Dont believe it. You need to think about signing a contract as if your worst enemy was on the other side of the table from you, and will try to use the contract to extract the maximum money and inflict the most pain possible on you. 90% of the time, nothing will happen. It will either be too expensive, difficult or not worth pursuing. But that 10% of the time, you will be glad for the effort you put forth in the negotiation.
Now that we've covered the generalities, I'd like to go into specific vendors, and what I've learned from each.
GARBAGE HAULERS:
In most cities, there are 3-5 garbage haulers, so you can call them and find out their prices.
What will you need?
There are a couple directions you can go with your garbage hauler:
First, you could go with just straight garbage pick up - so the garbage company supplies you with a dumpster, you throw *everything* in the dumpster and they come and pick it up once a week (or more often). This has the benefit of being easy - you dont separate anything... everything just goes in one bin. On the downside, it is more expensive, and you will probably catch some flack from your customers for not recycling.
Second, you could go with a garbage dumpster and a recycling dumpster. This is a bit more work, because you need to have *two* containers everywhere, and your customers need to separate trash from recycling. The two bins take up a bit more room everywhere. On the plus side - this is the least expensive option. The more you can recycle, the better, It costs about half to have a recycling dumpster vs. a garbage dumpster. In addition, in this day and age, most garbage haulers have single-stream recycling, so you can put plastics, glass, paper etc - all into the same dumpster and they will sort it out.
Third, you could go with just recycling and compost. There is only a small handful of things that cannot go in the recycling these days: styrofoam, waxed boxes, lightbulbs and empty insecticide spraycans. Pretty much everything else can be recycled. If this is the way you wanted to go, you could have a small 55gal *garbage* can, a couple compost bins and recycle everything else. On the plus side, you get huge kudos from your customers for composting everything. There are some downsides to separating your compost from your garbage: composting can be expensive. Right now, it is pretty expensive to get rid of compost - I'm paying about 30% more for my collection now that I separate my compost. In addition, I'm using these compostable bags (made from a cornstarch derivative) to collect the compost, which cost me about 3x more per bag than the traditional black plastic garbage bag. In total, I'd estimate I'm paying $400 more per month to separate and dispose of my compost.
Another consideration when separating compost; To use compostable bags or not to use compostable bags. There are some establishments that have just plastic cans that customers dump their organic matter into, then these are in turn dumped into a compost bin, without the use of bags. While this is certainly cheaper (compostable bags are expensive), you will need to consider the potential for attracting pests (rats/flies/cockroaches) when you have open food garbage. In addition, you will need a way to quickly and easily clean the compost bins that go in your shop. If you can deal with these two issues and avoid the cost of the compostable bags, you will save alot of money.
The amount you pay for garbage pick up is dependent on three things: First, the size of the dumpster (measured by cubic yards). Second, by how often it is picked up per week. Third, what is in the dumpster. So, with my shop, we have a 2-yard recycling dumpster that is picked up three times per week, and two 60gal 'cans' of compost that are picked up twice a week. I have to do some adjustments to frequency of pick up due to seasonality (we are located next to Yale, so summers are slow when school is out, and things peak in the fall and spring).
Your trash hauler should plan on replacing dumpsters at least once a year to clean and repaint them. The dumpsters get banged up, rusted and start smelling bad. When you set up your initial contract, discuss with your hauler when/how they replace / upkeep & maintain their dumpsters. Get it written into the contract...
Contractual Obligations - most garbage haulers want you to sign 5-year contracts. DONT DO IT!! I negotiated a single-year contract with my hauler, with a caveate that if they do not follow the contracted service, or repeatedly fail to address my customer service requests, that I can give them a 30 day notification to quit the service. Make sure that there will be no price increases during the contract period... and if they do increase prices, that gives you the option to nullify the contract.
LINEN COMPANIES
These are the folks who provide you with rags, mats, table cloths etc. They usually come in once a week and take all the dirty stuff and replace it with clean stuff.
A while ago, In my effort to keep my costs down, I tried buying my own rags and mats etc. and then washing / cleaning them myself. It only took about a month before I went back to a linen company to take care of that for me. It was WAYYY too much of a pain in the backside, and I wasnt saving much money.
Linen companies are a dime a dozen. It is pretty easy to get them to bid against each other for you business. However, the same thing I mentioned before also applies to these companies - the cheapest may not be the best... and actually might cost you more in the long run (or be such crappy service that you'll pull your hair out). I'd recommend contacting a couple different companies to get some idea of prices. Then, go around to a couple nearby restaurants and ask who they use... and how good they are. Once you find a quality company, tell them about the competitive bids you've gotten and see if they will come close.
These guys are terrible about arbitrarily boosting their prices. At least 2-3 times per year, they will just increase my price. At first, I got angry and called the company to complain... over time, I realized that I could just *ignore* the price increase and keep paying them the same I had been paying them before. They would eventually just reset my price back down. You see, these guys rely on your not noticing any price increase. For most coffeehouses, you are not paying much to these people - maybe $40-60 per week. So, if your price goes from $45 to $50, the company banks on your not really noticing / caring about a $5.00 increase to price. However, remember that even a $5.00 increase adds up to real money over the course of a year - $5.00 x 52 = $260.
You might get a call from their accounts receivable department about partial payment. Just tell them that you did not accept the price increase, and that if they do not reset your price back to where it was before, you can easily switch to another company. I had that conversation about six or seven times.. but now they dont even bother me. About once every six months, they reset my price and eliminate all the back charges.
AGain, these guys like you to sign contracts - the longer the better. When I first started out, I signed a 3 year contract, then I signed a 1 year contract... and now, I just dont sign any contract. I explain that I have been with the company for a long time now, I have always paid my bills on time, so I see NO reason for signing any long term contract. They try heavy-handed tactics with me, but I simply ignore them - they continue to provide me with the service and I continue paying my bills. Nothing happened.
If you do end up signing a contract, make sure there is a caveat in there that says if they raise the price for any reason, you have the option to decline the increase and/or you have the option to cancel the contract.
Payment terms - you can usually push payment out at *least* 30 days.
Alarm Companies
These are the companies who install alarm systems, then have long-term monitoring contracts
What do you need:
- I'd recommend broken glass detectors on the windows, motion detectors inside, a door alarm and a panic switch under the cash register. You can also tie in fire alarm systems (These are usually a selection of heat and smoke detectors). It will cost a couple thousand dollars to get this stuff installed.
- You will also need a monitoring box (that all the detectors hook into). You can either get one that ties into the phone line, or that uses a wireless signal. The wireless signal is a bit more expensive, but worth it. I'm trying to eliminate our analog phone line (because AT&T charges an arm and a leg for a single commercial phone line!) and the alarm box wont go through a digital VOIP line. For a while, I tried having the alarm signal on our regular phone line. It didnt work. Whenever you picked up the phone, the alarm would start beeping at you. Just shell out the extra cash to get the wireless box - itis worth it in the long run.
There are a bunch of companies that do alarm systems. Some are as small as a one-man operations (who install it, then sign you up to a monitoring service), some are huge, nationwide businesses (ADT for example) that do everything from install to monitoring themself. I have had some bad experiences with the big businesses. Once I had a salesman promise me a 1-year contract, then had me sign something that I did not read closely enough. Turned out to be a 5 year contract (in the fine print) and the company tried to come after me when I tried to cancel the contract after 3 years.
Like many of these service companies, they will want you to sign long-term contracts. Dont do it. Explain that you dont know what their service is like, and if you discover they are not a good company, you want the ability to get out. Likewise, if your business is brand new, you just dont know if you will even last a year, let alone five. Believe me, if you sign a five year contract, and your business folds after a year (or you sell it in two years...and the new owner does not take on the new alarm contract), these guys will come after you personally for the remaining term of the contract. If you DO have to sign a contract, keep it as short as possible - 1-2 years... and add in caveats about how you can cut the contract short if service is not up to expectations, if they try any price increases (for any reason). Some alarm companies will try to fight you on this by saying that the equipment they install is paid for with the long-term service contract, so if you have a shorter contract they will have to charge more for the monthly fees.
If that's the case, go and find one of these single-man alarm installers, and ask how much it would cost for them to install the system for you (JUST the system, NOT a service contract). This will give you an accurate assessment of the real cost of install.
I've generally found people in the alarm industry to be a bit untrustworthy. Many will try to slide something past you, and tell you things that are maybe not 100% true.... so be careful when dealing with them.
Well, that is enough for this posting. In the next posting, we will cover coffee roasters, bulk supply places (BJ, Costco, Sams, Restaurant Depot etc), specialist vendors and a quick summary of negotiating strategy when dealing with these.
thank you for your interest!!
Duncan
The Coffeehouse Guy
On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse. Unfortunately, they are not going to be ready for a little while. However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse. You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse. If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com
On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse. Unfortunately, they are not going to be ready for a little while. However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse. You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse. If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com
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