CHICAGO — On the surface, a laundry and linen service turning down new business might not make sense.
After all, doesn’t growth mean adding new business, especially after the past few years?
Not necessarily. Dig a little deeper, and there are times when an operator can and should turn away a new client.
American Laundry News heard from two experts in the field of business growth and productivity and resource optimization (PRO) on this subject.
Jason Pourakis is a partner at Mazars USA LLP, an international audit, tax and advisory firm committed to helping clients confidently build and grow their businesses.
Doug Story is a laundry industry veteran who recently opened MorgenBrooke LLC., a North Carolina-based group consultancy that provides PRO evaluation and decision-making that applies to any size laundry or institutional operation.
How can a laundry best analyze potential new customers to determine whether or not they would be suitable partners? Are there early signs they can watch for? How about later in the negotiation process?
POURAKIS: Initially, a proforma should be developed to analyze how this new customer can contribute to gross margin and overall profitability of the laundry. This will give a good indication that the pricing is right and the size of delivery/delivery schedule fits into the overall routes of the current business.
Ongoing and future evaluation—it is always good practice to have a three- to six-month lookback on new customers to 1) see that they are adhering to the initial volumes and provisions of the agreement, 2) look to see how many additional or “special” deliveries have been required to service this customer and ensure the laundry is maximizing the value of these instances, and 3) review the customer and delivery persons outlook on the service.
Are they a difficult customer? Are they especially abusive to the merchandise? There should be a provision in the contract that enables the laundry to claw back or bill going forward in these specific situations.
STORY: Meet them or have people you trust meet them. Are there changes in the criteria or critical data (such as volume) or hesitancy to provide needed information?
How can an operator best amicably remove itself from a potential laundry contract?
POURAKIS: Interesting question. You can watch our “difficult conversations” seminar for some tips and tricks.
There should be “out” clauses in order to enable a company to get out of a contract for cause.
I would recommend being proactive with the customer, identifying and addressing any potential issues, and if they continue, being quicker to out counsel.
STORY: There should be a clause in the contract that allows either side to remove themselves if things are not working out as planned. I’m not sure how to amicably do this, but it should work.
If it is an issue of just not being able to profitably supply the service or there are “personality/demands” issues, talk with the customer and work with them as they transition to another supplier.
Some laundry operators might say that at this time they have to take any and every customer. What would you say to them?
POURAKIS: You shouldn’t. Every situation is unique but looking at the whole organization (plant capacity, route structure and capacity, pricing, quality of client, etc.) all has to come into play when making a fully thought-out decision.
STORY: “Why?” I would want to test them as to the reasoning behind their statement. Is fear driving this or are they using financials with a degree of foresight in determining why they are wanting to do this?
Are they doing it to keep the plant running and keep their personnel working in preparation for better times?
Hindsight is always 20/20, but there are many operators who regret the fact they laid off workers during the COVID shutdown. They have found that plants that kept workers working during the shutdown, even at reduced production have had little to no problem ramping up for the volume growth after COVID shutdowns ended.
Whereas those companies that shut down or let significant numbers of employees go are having issues recovering their workforce.
Have they looked at the numbers of what it costs to install every new account they can get, no matter what it is? How does that fit into their goals, objectives, and capabilities?
Any final thoughts to add about laundry operators turning away new business?
POURAKIS: Every new business is not good business. Put a process and system in place that enables you to quickly analyze the new customer and if it is the right fit for our organization.
STORY: A lot of the “new account addition no matter what” exuberance is directly related to the size and age of an operation.
In many cases, a new operator/owner will have a greater proclivity to have this enthusiasm for new customers as he or she works to build their business and live their dream.
As the business and they mature, they will evolve into being more selective about what new business they take on and, on their efforts, to have more of their current business base grow via organic growth versus new customer growth.
Click HERE to read Part 1 about why laundries turn away customers and red flags to look for.
Evaluating Laundry Customer Contracts (Conclusion), May 19, 2021
Have a question or comment? E-mail our editor Matt Poe at [email protected].