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Big is not always beautiful!

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It may seem strange advice to beware of winning big contracts. After all most small businesses dream of catching that biggee which will set them up for the future. However, many a great small business has failed because they won a big contract with a large corporation.

The biggest problem is cash flow.

Large companies will often demand slow payment terms, which means it can be several months between paying employees and suppliers your end and receiving payment for your services. It is important to remember that even if you have agreed 30 day payment terms the cash will usually come in quite a but later than that. This is particularly problematic in the current economic climate where banks are reluctant to lend money to tide you over the interim period.

If a large proportion of your business is geared to fulfilling one large contract you leave yourself exposed should the large company you are dealing with has financial problems themselves.

Also, if you have to neglect your traditional client base whilst you complete the large contract you may find you have no business left one the contract is finished.

Now, I am not suggesting you never bid for large contracts. What I am saying is go into the process with your eyes open. Put away your rose tinted spectacles and examine fully what winning the contract will truly mean for your business. Are you prepared to accept the risks as well as the rewards?

Finally, there are professionals out there – such as your accountant – who can help you, so use them.

Fiona 🙂

 


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