Coping with the Dangerous Dream of Big Orders
For many small or medium-sized business, landing a contract that significantly increases their turnover sounds like a dream come true. However, large one-off or additional orders can be very problematic if you’re not used to them. They can even kill your business off, if you’re not careful due to the lack of immediate cash within the business to fund these large orders.
On the other hand, most business owners want to see their businesses grow and are prepared to take some risks to make it happen. So, how do you ensure that this big new deal enriches you, rather than causing serious cash flow and logistics problems that endanger your entire operation?
Preparation and Planning
The first thing to note is that wining larger contracts are not the only way to grow, especially when it comes to the all-important bottom line: At the start of the year, we discussed the power of targeting small changes across a variety of financial metrics, for example.
Nevertheless, few businesses will want to turn down the chance of expanding their customer base and taking on bigger orders. Whether you are bidding for work with a big company or mulling your response to an enquiry, it is therefore crucial that you think about what will happen once the ink is dry: Will you recruit more staff? Where and when will the extra work be carried out? Can your suppliers cope, and can you afford to pay them
None of these questions can be left to chance. You need to pick up the phone and speak to recruitment agencies, key suppliers and potential financiers and ensure that they can and will support you. Otherwise, you might have to walk away from this one – although a final avenue to explore could be the possibility of initially subcontracting some or all of the work.
Terms of the Contract
For many B2B businesses, landing bigger orders means working with bigger companies and they can have very different ways of working. In particular, the big corporates have a reputation for bullying their smaller suppliers into accepting unfavourable terms. If those terms are going to make things impossible for you or put your firm at risk, now is the time to fight them by making a counter proposal of your own. As with schoolyard bullies, big businesses tend to respect those who stand up for themselves.
On the other hand, if your big order comes from another growing firm, you are both inexperienced and it is therefore all the more important to set out in advance exactly what is required and expected from both parties. One particular problem that often haunts smaller firms landing big jobs is ‘scope creep’ – when your customer keeps changing the rules and adding extra work and new demands to the schedule, often without offering more money. Avoid this by agreeing specific terms in writing.
Another issue that should be nailed down is the timeframe. If you are going to clear the decks and take on new staff, you can’t afford to have the business standing idle because your supplier suddenly stalls or delays their order. You will also want to set out a very clear payment schedule that will allow you to invoice on delivery of pre-agreed milestones and get paid within a reasonable timeframe.
Most businesses will have an initial outlay to make before they see any money from a big order. You will need to work out exactly what you need to get all your supplies in on time and recruit any extra workers required. Can your cash flow cover these costs? Remember that you need a margin for error – even the best laid plans tend to get more, not less expensive and falling behind on your bills can have a serious knock-on effect on business.
If a major scaling up of your operation is required, you will probably need to look at raising capital to invest. Possibilities include business loans and equity finance, for example from a business angel or venture capitalist.
On the other hand, if all you need is additional staffing and supplier costs, you will want to avoid giving away equity or taking on expensive long-term borrowing commitments. Cash flow financing or Invoice Finance could be the key to solving this, especially using a flexible invoice financing option provided by The Invoice Market (tim.), with no upfront fees; no fixed interest weekly or monthly interest charges; no property required for security and long lock-in contracts.
First, you could get up to 85% of the face value of your current invoices paid upfront to go towards covering initial costs such as extra supplies and recruitment agency fees. Then, you could use invoice financing on an ongoing basis, to ensure that you get your money immediately that each milestone is met and you issue an invoice Instead of waiting for your clients to pay 30 to 60+ days later. In this way, invoice or cash flow financing effectively smooths your way into a world of bigger contracts and higher turnover, without you ever taking on a long-term debt commitment.
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