Are You as Ready as You Think You Are?
Contracts may seem like a fast way to grow your business and increase profits, but jumping into the supplier world without the right foundation invites unnecessary risk. Say you land a contract with a large corporation – what do you do when that company makes its first order and you don’t have the manpower or money to fulfill it? You might decide to get a loan so you can hire more employees or buy more equipment. But what happens when your application is denied because you don’t have business credit? When it comes to getting contracts for your small or medium business, being unprepared can be very costly – or even ruinous. Before you fall down a rabbit hole, prepare your business for these common challenges around contracts:
1. You’re going to need money
Once you start winning contract bids and fulfilling orders, you may find that your clients pay late, which can leave you struggling to pay your bills or fulfill other contracts. Before you start bidding on contracts, start forecasting your cash flow and determine how much work your company can realistically take on without running into dry spells. If you discover you’ll need outside financing to help you avoid cash-flow crunches, you can use your business credit to help you get funding.
2. You’re going to face new risks
Any time you begin working with a new client or company, you open your business to new risks. If the companies you contract with cease operations, your cash flow could be disrupted, or if they are involved in fraud or misconduct, your reputation could be harmed. By monitoring the companies you work with, you can help foresee financial issues, late payments, conflicts of interest, and more.
3. You’re going to be monitored closely
Landing a contract with a big-box store is some small business owners’ dream, but working with a large corporation means being subject to high standards. Many large companies will monitor the businesses in their supply chain to make sure they meet certain criteria. If you land one of these prized contracts, your business will likely be monitored and may have to maintain certain credit scores, credit ratings, or other benchmarks. By paying attention to your company’s business credit file and online reputation, you can help ensure you’re always meeting expectations.
4. You’re going to have to think long term
As a startup and new business, you were focused on staying above water and trying to make a profit. As a business poised for growth, you’re going to have to think more long term. If you’re thinking of bidding on contracts, make sure all your ducks are in a row first. Develop a complete and detailed business plan in case you need to show a lender what you’ll do with a loan, and build a solid business credit profile in case potential clients are using it to make decisions about your business. You can start building business credit by getting a D&B D-U-N-S® Number, and you can use another company’s D-U-N-S Number to monitor its file and manage new contracting-related risks.
If you pause before bidding on contracts and fully prepare for the challenges ahead, you can be more successful at growing your business. You’ll be glad you prepared for all possible scenarios before entering into any agreements.