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How to Start or Buy a
Telephone Answering Service:
New Buyers to the Industry
By Steve and Chris Michaels
Updated January, 2007
You've
seen an ad in a newspaper or trade publication with a telephone
answering service
for sale and wondered what it would be like to get into this industry. Your
first question should be, do you want to run the service as an owner/operator or
as an absentee/owner? Let's discuss these two options separately.
Owner/Operator
When
purchasing an existing Telephone Answering Service (TAS) company there are a few key items that you should
address. One of the main
questions is
to ask will the present management stay? You are going to need help with
understanding the
day-to-day
operations of the business, scheduling of operators, up keep of the equipment,
etc. If the bureau that you are buying does not have a manager, then make sure
that the seller will stay on for a period of time to fill you in on all the
details. It is important not to make any radical changes when you first take
over the business. The staff will be nervous as it is, so try to keep the
business running as usual but keep your eyes open for areas of improvement. If
you are new to the business, hiring a consultant to evaluate what you have
purchased could be valuable. In fact, you may want to consider having an expert
evaluate the business before you buy it.
In
evaluating a business, take into account the phone answering equipment manufacturer and age
of the equipment that is servicing the bureau: Are you going to be able to
continue on with the present
computer
equipment? Is it feature rich with options for your customer base such as alpha
dispatch, voice mail, fax, and voice logger with email delivery? Are you able
to become Web-enabled with the current equipment? What kind of software does it
come with and is the system upgradeable? Is it on a service contract, is the
licensing transferable and
does it come with a spare parts kit? If the equipment is old and out dated, then
the price should reflect that fact. If it is brand new is the seller going to
pay off the lease or are you going to assume the payments? These are just a few
questions concerning the phone answering equipment.
There
are a few tricks in making your business more profitable. After you have settled
into your new business, start to incorporate a
28-day billing
cycle if your call volume can support it. This will give you an additional
month's revenues for the year. You will also want to incorporate any new
features that will cut down on your operator labor, since that is going to be
your biggest expense. A well-run answering service can generate a 30% profit.
Your labor should run you around 40%, with 10% going to phones and taxes, and
20% for administration. Utilizing a voice mail system along with faxing and
email for message delivery should reduce your labor by at least 10% to 15%.
Instead of having to staff up for your busy times, which incurs additional
labor, the messages for your
customers have already been delivered so there are no highs or lows in your
staffing. The three most convenient ways
of message
dispatch are voice mail,
faxing, delivering them to their alphanumeric display pager or delivering the
messages via email. Another way to drastically cut down on your labor is to
offer auto-answer to your customers, with the option to press 0 to reach an
operator.
There
are three basic ways to price your services. The first is the old way that
bureaus used because of
the paper-based
equipment and to save labor, which was to price the service on a flat rate
basis. The customer would be charged a flat rate of, say $95 a month for
unlimited calls. If the customer were receiving a substantial number of calls,
then the owner would simply increase the rate. The flat rate system saves labor
by not having to count the calls at the end of the month; however, it usually
restricts your ability to make extra money and is not fair to all customers
concerned. The second is to charge a rate of $95 a month for 70 calls and then
to charge approximately 90¢ for overcalls, patches, pages, etc. This method is
preferable because it can be used by paper based as well as paperless equipment.
Of course different packages may be established such as live answer with voice
mail dispatch or a service with a pager for different customers' needs. With
this method, it is customary to bill the basic service in advance and the
message units in arrears. The third and most profitable way to charge is by the
minute or message unit, which will require a paperless, computerized system with
this capability. With this method of billing you are able to offer a low monthly
rate, for example, $30 per month, with a per-minute charge of say, 99¢. Every
time the operator logs on to that account, the clock starts ticking. So if the
customer wants to check in for messages live and chitchat with the operator,
they will be paying for her time. By far this is the most fair and profitable
way to charge for your service.
As a
new buyer you should be
prepared to pay
cash for a business. The prior methods of a down payment with the seller holding
a note are changing although some businesses may still be purchased that way. If
a service is in distress and the owner just wants out, you may be able to pick
it up for a percentage of the receivables per month with nothing down. And then
again if a service has sophisticated equipment, a good staff with large billings
and ample profits, you may have to pay all cash. There are as many variables as
there are services.
Your best
advertising is word of mouth, the second is by having a Website on the Internet
and the third is an ad in the
Yellow Pages. You may also elect to hire a sales person or do some direct mail
advertising. Some bureau owners use their existing customer base for referrals.
In your bills, simply put a stuffer advertising a free month, or something that
will entice your present customers to bring you some new business. When you
become Web-enabled, a good source for your advertising would be to buy a banner
on one of the major search engines.
Absentee/Owner
If you
are purchasing an existing
business and are
planning to run it as an absentee owner, then take a good look at the net EBITDA
profit (Earnings Before Interest Taxes Depreciation
and Amortization) to figure out what your profits will be.
Some individuals in the industry do not think that absentee ownership works but
there are many who run absentee businesses and are doing quite well.
Check the staff, especially the manager to see if he or she is trust worthy and
can run the operation with little supervision. Verify that the software on the
computer equipment has been updated, financial information checks out and to
verify there is enough cash flow to operate the business, pay the staff and have
some money left over for you.
We
would suggest
using
your CPA to validate the Income Statements, Balance Sheets, and tax returns. Your
attorney should look over the purchase contract. Most of the other items that
you should check on have been covered above. Remember, the rules for buying a
business are: 1) never fall in love with a particular business, and 2) always be
willing to walk away from a deal.
There
is all sorts of help out there if you need it. The beauty of this business is
that it is almost recession proof due to the diversity of its client base. When
one market segment is in a lull, another one picks up. For example a company
starts to downsize and lays off a secretary or receptionist and will hire an
answering service to pick up the slack. If you are looking for a business with a
steady cash flow, diversity of customers and a good profit margin, then an Answering Service business is for you.
For more information:
Steve and Chris Michaels operate TAS Marketing, a business brokering
company focusing on assisting clients buying and selling telephone answering
services and outsourcing call centers. Contact them at 800-369-6126 or TAS@tasmarketing.com
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