Perhaps one of the most overlooked and least mentioned qualifiers by clients for their suppliers is their ability to survive in tough economic times. Why is this? Is financial stability a taboo or uncomfortable subject? Is it assumed that all businesses operate profitably or is the topic just pushed to the bottom of the priority list?
I would suggest, regardless of the length of the business partnership, that an open conversation regarding the financial condition of your suppliers take place on an ongoing basis. These conversations can define a healthy and growing business partnership. In the relocation industry, the vast majority of suppliers are privately held organizations – not required to publish financial statements. Although financial records are technically private documents, there should be a level of transparency in a business partnership. Clients should feel comfortable making sure that suppliers are not only profitable, but also generating cash to effectively operate their business.
Our industry continues to witness suppliers from many different specialties struggle financially and, in some cases, be forced to close down operations; often leaving clients in difficult situations. Many of these companies have been faithful and respectable partners for decades. Like many other industries, the relocation industry is changing rapidly. Outdated management strategies, new and uneducated ownership, and poor decision making on key initiatives can trigger the beginning of a downward spiral.
For all companies engaged in business to business partnerships, I would suggest the following:
- Request audited financials of your service providers at least every other year. All reputable suppliers should have audited financial statements prepared annually.
- Be familiar with the numbers. Ask for Z-Score, Debt to Equity Ratio, Current Ratio and run their Dunn & Bradstreet report to help understand their financial standing and performance.
- Watch for signs of reinvestment into the company and consistent revenue growth.
- Don’t be afraid to question financials. If you get push back or unclear responses; beware. As the saying goes, “Where there is smoke, there is fire.” This couldn’t be more true than when it comes to financial issues.
A financially sound organization should be proud of their financial performance, growth and investments. Whether evaluating new suppliers through a vetting process or a 20-year relationship, be cognizant of the financial performance of your suppliers. You don’t want to be deep in a business relationship, only to find your provider is suddenly no longer in business.
by Todd W. Messerle, Director of Corporate Sales