Suppliers are all too overlooked as not being too important; you pay them, so they need to do as you say, right? Wrong. Suppliers can have a huge impact on your business and they are a vital cog in your machine that delivers awesomeness to your customers. They need to be cared for and chosen based on a number of key factors.
As we discussed in our previous section, How to build the right Business Model, the model you choose will determine how your business will operate. When choosing suppliers, you need to be mindful that those suppliers fit with that business model.
In doing this, you also need to identify your Cash Flow Model. That is, how cash flows in and out of your business – and this will depend on the model you’ve chosen.
For example if your business is a monthly subscription model, your cash flow model will also be monthly.
Cash coming into the business will be on a monthly basis, and therefore, you want to operate cash going out in the same way; monthly.
Under this scenario, you want to choose suppliers that can work with this. It wouldn’t make sense to have a website, which results in you having to pay a large up front fee. A website provider that can match your monthly model, which work in synergy, rather than be detrimental to your cash funds.
Similarly to this, most service based retail businesses (such as Pubs, Restaurants & Cafes) tend to operate under a weekly cash flow model. Under this model, it would make sense to organise suppliers to match this where possible to avoid your bank balance being all peaks and troughs.
During my time as a business owner, I’ve found working with suppliers who have a similar size business, and have been in business a similar amount of time as me have helped our relationship. We have common ground; we face the same challenges, and that helps in knowing how we want to work with each other.
Think about a time you’ve called a utility company for something, and the call centre person you talk to doesn’t seem to be able to relate. That’s because, as a huge company, they have internal systems and processes to follow, which will be often be totally different to how you want to operate. It’s the same in business. Suppliers of a similar size will ‘get you’, and that can be invaluable.
There are two types of suppliers you’ll be looking at. Overheads and Cost of Sales.
Overhead Suppliers will be those who supply you with overhead costs, such as rent, accountancy, IT, Insurance, Legal etc. These don’t play as much as a direct role in the selling process as Cost of Sales, but they can still impede your growth if you don’t choose the right suppliers for your business.
Choosing these suppliers, you definitely want to use the points above in your selections process.
Cost of Sales costs, are where you’re buying things from these suppliers that directly link to your Sales, such as Stock (if you’re selling a product), or raw materials (to make the product/service you’re selling). This could mean your business and it’s operations depend on these suppliers entirely and without them your business will fail.
You may not have as much of an option to choose a supplier with similar size and journey as you here, and indeed you may not want to. If your business depends on these suppliers, you want to reduce risk wherever possible, and therefore choosing a business that’s been around for 20 years rather than 2, could reduce that risk factor.
More?! That’s right. Just because a big supplier tells you it’ll cost £x, don’t be afraid to push for a better price, or a better deal. But in doing so, make it win win. That is, if I can get this slightly cheaper now, I’ll be able to sell more and grow quicker, which will mean I can pay you a better price later Don’t just ask for a hand out.
Also, make sure it’s legitimate too. You don’t want to get down the road and then not be able to do what you said you were going to do.
Particularly if they are a small startup like you. Mistakes can happen – they too, could be learning their model and processes for things just like you. If they make a mistake, and let you know quickly and how they’ll fix it, give them a chance – just as you’d like to be given the same.
Create some guidance and indications of who you want your suppliers to be, and go looking for them. Don’t forget to ask for recommendations where you can.
Don’t forget, look out for our next blog in the series: Break Even Point
If you missed our previous blog in the series, Start-up Costs, take a look here.