First Things First
Before you begin searching for vendors, it’s important to analyze your business requirements. What products or services do you need? How important are they to your business? How often do you need them? How will these products and services affect your bottom line? How much are you willing to pay? What are your expectations of a vendor?
Thinking through these issues and putting the answers in writing makes it much easier to narrow your list of candidates and eliminate those that don’t meet your minimum requirements. Be sure to get input from those who will be directly affected by the vendor relationship.
Once you have determined your requirements, it’s time to put together a document that you can give to potential vendors stating your requirements and soliciting a response. Depending on your needs, this may take the form of a Request for Quotation, Request for Proposal, or Request for Information. In each case, this document should contain a detailed description of your requirements and expectations as well as any assumptions, constraints, or special conditions the vendor should know about. If you are looking for materials, be sure to request samples.
When you have received enough vendor proposals, you can begin the selection process. Always keep in mind that you are looking for a vendor that can provide what you need when you need it at a price that fits your budget. Due diligence in the selection process can make or save you a lot of money in the long run.
Pricing Isn’t Everything
It’s easy—and often foolhardy—to choose a vendor simply because they offer the lowest prices. It can also be tempting to switch vendors whenever you discover a less expensive deal. That deal can go sour very quickly if the supplier doesn’t deliver on time, fails to provide consistent quality, or refuses to work with you in times of special need. Value for your money should be a greater concern than just getting a bargain price.
Following are some other qualities you may wish to consider when searching for the best vendors for your enterprise:
These days it’s easy to check a company’s reputation online. Look for ratings and comments from past and present clients and note especially any that talk about the financial effects of the vendor relationship. Be aware, however, that there may be false reviews, either positive or negative, on the Internet. If appropriate, you may wish to contact companies that have dealt with the vendor and get their opinions directly.
If you are looking for a long-term relationship, you will want to find a vendor that is likely to stay in business and provide consistent service for the foreseeable future. Longevity may be a key consideration, as well as the stability of the industry. Another consideration may be the number of clients the vendor services. A company that has only a few clients can quickly get into financial trouble if any one of those clients should disappear.
The last thing you want is to fail your customers because a vendor failed you. You want to find a vendor who delivers accurately, on time, all the time, without excuses, and who acts quickly to resolve any problems. Spending time and money to fix mistakes caused by a vendor can be extremely costly both in lost revenue and loss of customer confidence.
When unexpected problems or opportunities arise, as well as in times of seasonal changes in demand, you want to be able to work with your vendors to make adjustments. An ideal vendor is willing to help you fill rush orders and change or cancel orders after they have been placed. There may be times when you need to delay payments or adjust terms. A vendor who understands and is willing to work with you can be a priceless asset.
The right vendor will be easy to contact and will promptly answer your calls and correspondence. You should look for vendors who care about your business relationship and are committed to helping you succeed. Ideally, your vendor will be knowledgeable enough to give quick answers and creative enough to help you find quick solutions.
Too many vendors make promises they can’t keep, in order to land a contract. Others may misrepresent their capabilities or fail to disclose potential problems. Look for vendors who are honest about what they can and cannot, will and will not, do. Watch for red flags that may indicate overpromising or dishonesty. A vendor with integrity will ask questions and point out concerns before entering into a contract.
Remember that integrity is a two-way street. It’s important that you be honest with potential vendors, and fully disclose any circumstances that could affect your business relationship. The value of a long-term partnership based on mutual trust and accountability cannot be understated.
Sealing the Deal
Once you have found a vendor you want to work with, it’s time to negotiate a contract. You want to work out the best deal possible for both you and the vendor. Some things to take into consideration are:
- Pricing and expectations regarding increases or reductions
- Payment terms and flexibility
- Inventory balance (having sufficient to sell without tying up too much capital tied up)
- Exit strategy in case things don’t work out
Additional Tips for Choosing the Right Vendor
It’s important to remember that vendors are critical to your business. It’s a good idea to have at least 2 “go-to’s” for critical items. That way, if one is struggling you have options (as the saying goes, “Don’t put all your eggs in one basket”). It also helps in negotiating price when suppliers know you have options to help keep them honest. We’ve found that, for the most part, vendors seem to understand it is part of smart to have a few sources of supply and don’t take it personally if they don’t get all your business.
For critical suppliers, it is important to meet with them at least a couple times per year in a semi-formal “business review” setting. This helps keep surprises to a minimum for both parties and helps the relationship.
Having the right vendors can make or break your business financially. A long-term relationship with a vendor who provides well-priced products and services in a consistent and timely manner and is willing to work with you in times of special need, is of inestimable value.
If you would like additional information or financial advice, we encourage you to visit PreferredCFO.com or speak with one of our CFOs.
About the Author
Mike Paulsin is a highly regarded financial leader with over 30 years of organizational & financial expertise in a variety of economic landscapes in both public & privately-held companies.
You may also be interested in...
In today's dynamic business landscape, having a strategic financial perspective is more crucial than ever. However, not all businesses can afford to have a full-time Chief Financial Officer (CFO) on their roster. Many choose instead to utilize virtual CFO services – a...
Financial Key Performance Indicators (KPIs) are crucial measurements of a company’s fiscal health. These metrics provide a window into the current and projected profitability of an organization, enabling managers and stakeholders to make informed decisions. By...
For many businesses, product inventory is their biggest asset. Effectively managing the inflow, storage, and outflow of inventory is critical to the financial success of the company. When inventory management is done right, customers can place orders with confidence,...
Preferred CFO recently added Human Resources Veteran, Tom Applegarth, to the Preferred CFO team to offer outsourced HR services in addition to or standalone from outsourced CFO services. In this video, Tom introduces his experience and key benefits he offers Preferred...
Your employees are the lifeblood of your business. However, labor is also typically the highest cost for most businesses. Costs associated with hiring, training, compensating, retaining, rewarding, and managing employees can easily spiral out of control when there is...
A financial audit serves as a valuable tool for ensuring a company’s compliance with legal and regulatory requirements, building credibility with stakeholders, managing financial risks, and maintaining transparency in the financial operations of the business....
A SaaS CFO is a chief financial officer with specific experience in the Software as a Service (SaaS) industry. A SaaS business is different from traditional businesses that require a one-time purchase or otherwise brief relationship transaction as a SaaS company...
Cost analysis and price analysis are two important procedures that are used by businesses to calculate the true cost of a product or service and determine the best sales price. By understanding and correctly utilizing these processes, businesses can make informed...
Before starting a new business—and periodically thereafter—it is important for company executives to carry out a market analysis, also called a market evaluation. Most entrepreneurs conducted a market analysis (to the best of their abilities) when they were developing...
A fractional CFO is an experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. This offers a company the experience and expertise of a high-end CFO without the in-house cost—salary, benefits, and bonuses—of a...
Generally Accepted Accounting Priciples (GAAP) Financial reporting is an important part of business that communicates the financial performance and results of a company. It records and presents information about the company’s financial position, revenues, expenses,...
The end of the fiscal year can be highly stressful for financial officers and corporate executives. The year-end closing procedure is time-consuming and sometimes brings unpleasant surprises. Particularly in times of economic downturn and short staffing, year-end...