AKIBIA'S PRACTICAL GUIDE TO ENTERPRISE TECHNOLOGY
Saturday, May 09, 2009
Financial Strength of Your Vendors…Show Me the Money!
Regardless of the specific market conditions, it is always important to conduct adequate due diligence on the financial strength and performance of vendors you plan to rely on for core services. While Dunn & Bradstreet might be your first starting point for a financial review, it's best to go much deeper and get information direct from the vendor to ensure the thoroughness and accuracy you need to make effective decisions.
A small checklist:
- Audited Financials – Responsible private companies, even though it is not required, will hire a CPA firm to conduct regular annual audits. The vendors you are considering should be willing to share the results of these audits. Get an understanding of the depth and breadth of the vendor’s business. Are the operating results consistent and reliable? Evaluate the previous years, looking for any significant changes, positive and negative. Review the company's balance sheet and compare working capital and credit facilities to overhead costs to determine the company's overall stability and independence in turbulent times. Look over the footnotes for any potential uncertainties or other business risks. If a company does not submit to an independent audit, consider other vendors.
- Proven Management – Evaluate the strength of the management team, their track record and performance. What is their tenure and industry experience? The P&L is the management's report card.
- Liquidity – Is the company generating cash? With the current level of economic uncertainty, profitable cash flows, cash-on-hand, working capital and unused credit facilities demonstrates the fuel necessary to fund effective operations that will be supporting your organization.
- Trade References – Ask about significant customers. Are you familiar with some of the names? How does your business relate to these customers? Ask permission to speak with customer references. They will be the best indicators of quality of service the vendor can provide.
- Ask Questions – After you have reviewed the audited financials and other materials, insist on speaking with the company’s Controller or CFO. Ask direct questions about the company’s current operations and the 3-5 year operating plan. Is the service the vendor is providing to you a core competency and strategic focus of the company? If it is not, you might not get the attention, expertise and quality of service you need.
A vendor's proven track record and strong financial position can help you ensure service levels will be met, the staff supporting you will be well maintained and the overall service you receive will remain consistent. Without a proven business model and strong balance sheet a vendor can not promise you consistent, high level service over the life of your contract.
-- Ken Laglenne, Controller, Akibia
