How Do You Know Who to Partner With?
Finding a reliable small business partner can be a daunting task. There are many factors to consider when deciding what relationships will be most beneficial for your company, and the implications of such decisions can be monumental.
One of the most important things to consider is whether or not a potential business partner is financially stable and creditworthy. This is a decisive step in the process of determining whether or not a potential partner can be relied upon to honor the terms of your business arrangements.
If there is a risk that they will be unable to fulfill their obligations, then it can pose a significant threat to the financial security of your business. The possibility of not receiving payment for services rendered or products provided warrants careful scrutiny before entering into any business partnership.
Five Factors to Consider When Choosing a Small Business Partner
Credit Rating – Checking the credit rating of a business is a great first step in evaluating their creditworthiness. Business credit ratings range from 0 to 100, with 75 and over typically considered an “excellent” rating. This score provides an overview on a business’s financial standing, taking into account a number of important factors such as credit and payment history. However, you may want to dig deeper—after all, there’s only so much that a single number can tell you about a business.
Financial Statements – Reviewing a potential small business partner’s financial statements provides an additional layer of detail that goes beyond the somewhat opaque credit rating system. Verifying the stability and liquidity of a business can help ensure that you enter into business agreements with companies that are likely to satisfy their obligations in the long-term. Are they “in the black,” turning a profit, or struggling just to make ends meet? Knowing the answers to these questions provides a basis for evaluating a business’s financial vitality.
Payment History – Assessing a business’s payment history on previous credit arrangements is another important indicator of reliability. A payment history that demonstrates consistent, on-time payments speaks volumes about a company’s creditworthiness. On the other hand, if they’ve defaulted in the past, they may pose a higher risk.
Industry Trends – While not specific to particular businesses, having a sense of industry trends may save you from overextending credit to a business in a high-risk industry, or help you to build relationships with companies destined to be successful.
Credit References – Checking credit references can provide important insights into a business’s previous dealings, and may indicate how it is likely to operate in the future. Getting information first-hand from previous and current business partners is invaluable when selecting a reliable small business partner. Learn more about how to check credit references here.