As a small-business owner, you probably do everything you can to keep your business’s finances healthy. You keep tabs on your budget, monitor your cash flow, keep your business and personal finances separate, and monitor your business credit.
But despite your best efforts, other businesses’ problems can become issues for your business, as well. How does it happen, and what can you do to prevent it?
The Ripple Effect
Let’s say your business has a few key clients who are the source of a substantial portion of your revenue. Everything’s smooth sailing until one of them fails to submit payment on schedule. Out of respect, you might give them a short grace period if they’ve always paid on time in the past. Soon though, it becomes clear that something is amiss.
You leave messages, but receive no reply. When you finally manage to get one of the company’s representatives on the line, you’re informed that your normal point of contact is no longer with the company. You do some digging in the EDGAR database and find out that this longtime client has filed for bankruptcy.
Now you’re stuck seeking a resolution through the court system. Sure, you might get back some of the money you’re owed, but the cost and effort involved may not even be worthwhile.
Because your business was reliant on this client for a sizable chunk of its monthly revenues, your cash flow situation takes a sudden change for the worse. If you have good business credit, you’ll probably be able to make ends meet until more clients can be found to fill in the gap. If not, you may end up having to make some difficult decisions.
Prevention Is the Best Medicine
More than one small-business owner has found themselves in a situation similar to the one above. Others have had their supply chains disrupted by unreliable vendors. Some have even had their own businesses go under because of it.
The good news is that situations like these can be avoided. No, you can’t control how your clients manage their finances, or how they source their raw materials, but you can keep close tabs on their fiscal health.
If you’d like to stay ahead of important developments related to your business partners, CreditAdvisorTM from Dun & Bradstreet is an ideal solution. This service provides business owners with continuous monitoring of business partners’ financial health. It includes access to D&B scores that predict the likelihood of default and financial stress.
Keeping close tabs on business partners’ viability is the smart way to avoid unpleasant surprises. Think of it as a vaccination against business problems.