Small companies are finding that almost everything is renegotiable these days.

The economic downturn is prompting business owners — by necessity or by opportunity — to re-examine contracts with suppliers, vendors or landlords and come up with creative deals. And in many cases, they are saving a substantial sum of money.

“Most of us grew up knowing that once you agree to something, you don’t back out of it,” says small-business consultant Bill Bartmann of Bill Bartmann Enterprises in Tulsa, Okla. “That rule doesn’t apply anymore.”

In a survey released in September of more than 1,000 small-business owners and managers, about 15% had recently renegotiated long-term fixed-cost supply contracts, according to the Small Business Research Board, a Buffalo Grove, Ill., publisher of the Small Business Confidence Index, which tracks overall business confidence and issues of small-business owners and managers.

One thing that certainly helps is having the cash to pay your bills on time. “If you’re a fast payer, you can negotiate lower rates with your vendors to help the other company, the company you’re paying to, with their cash position,” says Carl Gould, president of CMT International LLC, a small-business consulting and advising firm in Riverdale, N.J.

Atlanta Refrigeration was able to negotiate new jobs for four employees with a supplier. Above, a service manager checks on a pressure gauge.

Tom Long, an Oak Park, Ill., small-business consultant, said 10 of his dozen or so clients have negotiated discounts of 1% to 5% with at least one vendor for paying with cash or personal check, and usually within 10 days of a product or service’s delivery. Most have negotiated these deals in the past 30 days, he says.

“Conversely,” says Mr. Gould, “if you’re an extremely slow payer, sometimes you can get your monthly obligation lowered because of the financial position you find yourself in. The vendor will often accept that because they’re getting paid as opposed to writing off the entire obligation.”

Mr. Bartmann adds that “sadly, there are not many small-business owners flushed with excess cash right now.”

1800Diapers Inc.’s Diapers.com, which sells baby products, was able to use the fact that it had available capital to secure a better deal when it negotiated new leases for two of its warehouses. The Montclair, N.J.-based company was able to shorten the term of the new leases to two years from five, received more space and got conditions on flexibility that would allow it to lease more space if needed. The company wouldn’t disclose how much it saved in operating costs.

Sid Jaridly, chief executive of The Original Mr. Cabinet Care, an Anaheim, Calif., kitchen-remodeling company, saw the market contracting last year and decided to trim supply costs across the board.

Mr. Jaridly talked to about 40 or 50 vendors with the goal of getting a 10% to 15% price reduction from each. He said he got about 25 to 30 to agree to a discount or new deal, saving the company about 15% of total operating costs, or about $400,000 to $500,000, last year.

“We’ve been loyal with some of these vendors for decades and obviously, during an up cycle, we agreed to certain price increases,” Mr. Jaridly says. “During a down cycle, we expected them to also lower their costs.”

Thinknicity Inc., a San Francisco recruiting firm for the technology industry, in May set out to renegotiate its lease as part of an effort to slash overhead costs. In July, it worked out a new three-year lease with its landlord, reducing the space it leased to 3,000 square feet from 4,000 square feet.

But in the third quarter, Thinknicity had to cut back some more, so management decided to go back to the landlord for another round of renegotiations. Helga Grayson, chief financial and operations officer, says she told the building manager that her company’s revenue was down by 50% and it was prepared to walk away and find a smaller space.

A few weeks later, Thinknicity secured a new three-year lease for 1,700 square feet with rent of $3,500 a month, compared to the $5,100 per month it was paying for the 3,000 square feet.

Some small businesses are even negotiating on behalf of employees, as was the case with family-owned Atlanta Refrigeration Service Co. Dave Brautigan, chief operating officer, in November approached a major supplier, Heritage Food Service Equipment Inc., asking it to take on four Atlanta Refrigeration employees whose job it was to acquire parts for the commercial refrigeration and air-conditioning company. In return, Heritage would become the only supplier for Atlanta Refrigeration, which also would be willing to pay more for parts like thermostats and motors.

The result: Atlanta Refrigeration was able to save more than $250,000 in payroll and benefits costs. And Heritage, of Fort Wayne, Ind., was now poised to gain $1 million in business from Atlanta Refrigeration.

“It has made our relationship with that contractor better,” says Mr. Brautigan. “Because these people used to be employed by me, they know the unique urgency and the systems that we have in place.”

At first, Dave Morris, vice president of Heritage, wasn’t sold on Mr. Brautigan’s presentation, but was convinced when the talk turned to how much more business Heritage could get. “As they grow their core business, as their supplier, our volume goes up with them,” Mr. Morris says. Atlanta Refrigeration generates $12 million a year in revenue and has about 100 employees.

Some companies have found that negotiating better terms sometimes isn’t enough, however. Take New York-based Proximo Consulting Services Inc., an information-technology consulting company in New York that has been feeling the cutbacks from its large clients.

“Being a small company, there’s a lot less fat to cut when you’re looking at making cost cuts,” says David Ricciardi, president of the 25-employee company. “It’s not like I can lay off 1,000 people.”

In April, Proximo was set to stop outsourcing hardware and network support and bring the work in-house. But the vendor, New York-based Perry Technology Group Inc., a technology consulting-services company that monitored servers for Proximo for about four years, came back with another suggestion: Keep us on until the end of the year, but for monitoring of only half of Promixo’s 32 servers. That would lower the contract’s cost to $1,400 per month from $4,000.

Proximo agreed and internal staff began monitoring the other servers. Perry “understood the situation and were very willing to work with us to do that,” Mr. Ricciardi says.

Still, in December Proximo ended the provisionary contract altogether because the company couldn’t afford it anymore. Mr. Ricciardi says when business swings up again, he’ll definitely consider bringing back Perry as a vendor.

[via WSJ Small Business] by Raymund Flandez at raymund.flandez@wsj.com

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The New York Times profiled a college class at Stetson Univeristy, headed by Professor Becky Oliphant. The students helped a $33 million parachute company, Complete Parachute Solutions Inc., analyze their sales and improve their business model.

Student Consultants Supply Fresh Insights to Businesses

FOR the last four months, nine students at Stetson University’s business school have been putting together a marketing plan for a maker of parachutes and related equipment, Complete Parachute Solutions Inc., not far from the school’s campus in central Florida.

More than just gaining business experience, they were playing the role of consultants, trying to answer questions like what new overseas markets the company should seek out and what effect a Democratic takeover of the White House would have on sales to the American military, the company’s biggest customer by far.

Fred Williams, the vice president for manufacturing and technical relations, is a former member of the Navy Seals who has made more than 8,400 sky-diving jumps “and never broken a bone.” He says the business exercise will bring substantial gains. “We got raw fresh insight into our company from people who not long ago knew nothing about it and who came up with unbiased recommendations,” he said.

Sending business students to do fieldwork at local firms is not new, of course. The trend, however, has taken a sharp new turn over the last few years, said Bo Fishback, vice president for entrepreneurship at the Kauffman Foundation, a center of entrepreneurial research in Kansas City, Mo.

“There has been a huge shift into these hands-on programs where the kids act as de facto consultants,” Mr. Fishback said. “A company might say, ‘We’re developing a new underwater breathing apparatus,’ ” he said. “We want you to tell us how to market it.”

The switch in roles has given birth to a related trend that he described as “super targeting,” in which companies that have tapped into business school students’ expertise then seek help from specialists in other departments, like computer science professors.

The class at Stetson, in Deland, Fla., got an unexpected reward for its work. Becky Oliphant, an associate marketing professor at Stetson, and her students were given the chance to sky dive, using, of course, parachutes made by Complete Parachute Solutions, a consortium of three parachute equipment makers with more than 300 employees.

Five took up the offer. One, Heather Fuller, who is also the director of a hospital pharmacy and the owner of a dance business called Dancelexic, said she was nervous about making the jump but now cannot wait to do it again. “It was the most exhilarating sensation I’ve ever had,” she said.

The Stetson students spent the semester compiling recommendations for upgrading the company’s Web site. Ms. Fuller said the group proposed ways to make the site easier to use and to add features like a customer portal and an online store.

After the students’ final presentation on Monday, Mr. Williams said, “We’ll certainly take elements of their report, especially concerning the Web site.”

He said that he was especially intrigued by a map the group created that showed how many keystrokes it took customers to reach various spots on the site and that he found persuasive the students’ arguments for making India and Japan primary marketing targets.

Didi Davis, founder of Didi Davis Food in Ipswich, Mass., credits a consulting program offered by the business school of nearby Babson College for getting her venture on track — and indirectly lifting it from a niche outpost into a potential national distributor of specialty food products.

Ms. Davis, 55, ran a catering service in high school, started a cooking school in 1982 and wrote two cookbooks before experiencing an entrepreneurial epiphany on a trip to Paris four years ago. There, she sampled vanilla-flavored sea salt, and she was so taken by it that she started Didi Davis Food on her return home. Her idea was to make gourmet condiments like flavored salts and syrups and to sell high-end packaged foods like vinegars and mustards.

The firm grew slowly, to $75,000 in revenue last year, but, Ms. Davis said, “Believe it or not, I didn’t have a business plan.” So last fall, she enlisted a team of undergraduate students at Babson’s business school, under the direction of a master’s degree candidate, to write one.

“What we gained was a smart, polished report that focused our minds and opened up the potential for us to raise outside capital,” Ms. Davis said. “Perhaps the biggest immediate benefit was to persuade us to institute a proper accounting system. The business plan was a wake-up call; it forced us to join the real world of business.”

That in turn gave her the confidence to make a move that she believes could put her company on the food industry map. In February, she made a $120,000 deal to acquire Salt Traders, a Web site that markets specialty sea salts. “We can sell our stuff over Salt Traders,” she said. “We’ll have a national presence.”

She was not the only one to gain a practical benefit from the project. Aditi Chowdhary, who led the Babson consulting team and is getting her business degree this weekend, said it gave her management expertise that she can use when she joins her family’ small manufacturing company in India. “Right now, my ambition is taking my father’s company global,” she said.

Rosemary Casey, the Babson business school’s manager of consulting programs, said the practice of exposing students to local companies dated to the 1970s. The number of teams has grown to 14 or 15 a semester, from 10 to 12 four years ago.

Babson likes to work with nonprofit groups, she said. One team did research for the Earthwatch Institute in Maynard, Mass., on pricing adventure tours for the public, for example, she said, while another did a report for the Cape Cod chapter of Habitat for Humanity on the feasibility of creating a resale store for discarded housing materials like shingles, gutters and bricks. (It recommended against the move.)

“I think this sort of experiential education has become more and more common,” Ms. Casey said.

Dr. Oliphant at Stetson agrees. Just over the last couple of years, she says, her students have worked with nearly 50 businesses, performing services as diverse as alerting a distributor of key lime pies that his Web site was about to expire, helping a hair salon relocate and creating a slogan for it, and urging a maker of hurricane shutters to market them as protection against burglars as well as storms.

In fact, she said, her program has gotten too popular, forcing her to turn down overtures from would-be entrepreneurs who have neither a business nor a product but only an untested moneymaking idea. “It’s like a physician at a dinner party,” she said. “Everybody wants a free diagnosis.”

By contrast, working with an established and growing company like Complete Parachute Solutions rewards students for their work with real-world experience. And, of course, there are the parachute jumps. Ms. Oliphant says the company’s offer to stage the sky diving event was made spontaneously at her first meeting with Mr. Williams, the company’s vice president, in January. “All I wanted him to do was provide an open parachute in a back room so the students could at least see and touch it,” she recalled. “I said, ‘Could you …,’ and he broke in, ‘Give ’em a jump? Sure. How are they going to understand the business otherwise?’ ”