02/ 23/ 2006
by Jeffrey Moses
When a small business can establish relationships with vendors, lenders and subcontractors well in advance of when they are needed, it can avoid mistakes and save money. Planning all stages of development in advance is always a winning strategy.
Starting the search early provides the luxury of time: time to accurately determine the services and supplies needed; time to shop around for the firm or individual that provides the best fit with company needs; time to compare prices; time to negotiate terms; and time to weigh options and gather the most information possible before making a decision. On the other hand, waiting until the last minute to begin the search minimizes all of these advantages.
Starting the search before needs arrive requires planning. Because every growing business eventually will need to establish ongoing relations with vendors, lenders, etc., management should create a list of projected needs in these areas, well before those needs exist. You can then make initial contacts, interviewing candidates in depth. Based on the interviews, lenders and outside contractors can be selected, so that immediate action can be taken when actual needs arise.
A well-designed business plan should include projected future needs for vendors and lenders. (Future need for subcontractors often is more difficult to determine.) Using the business plan as the basis, the need for vendors and lenders could include the following criteria:
Vendors/subcontractors
1. Projections for growth of existing operations/production in terms of supplies and outside services required. This should include timelines for revenue growth, employee growth and quantity of output.
2. Projections for new operations/production, including projected revenue, required employees and output.
3. Establishing relations with local and nationwide temporary staffing agencies.
Lenders
1. Projecting financing needs, specific uses of funds and dates for funding.
2. Working with lenders while setting up new or expanded operations, so they will be part of the project rather than outsiders.
3. Setting up immediate lines of credit to establish creditworthiness and to cover initial set-up expenses of new or expanded operations.
An ideal scenario for setting up vendors/subcontractors and lenders in advance might go something like this: You approach your lender months in advance with detailed plans for your new or expanded operations. These include (just as in your business plan) why you need the funds, projections for revenue growth, how you will use the funds, when you will need the funds, and how you will repay. This is a scenario lenders love because it involves them in every step of the operations they are funding. In addition, this advance time allows you to contact potential venders and subcontractors to determine needs and negotiate terms, making these terms part of the loan package.
