Vendors are critical partners who have the ability to seriously help or hinder your business. Good relationships with vendors will help with cash flow, help in quality services with your customers, and help you reduce the struggle to manage inventory. A bad relationship with vendors can cause some headaches including seriously hurting the life of your business life, your cash flow. Most business buyers have never considered partnering with their vendors to finance their purchases. Here are some ideas about how to work with vendors in financing new acquisitions.
1. Extend your terms – if you buy a business that has a heavy need to work with vendors you might be able to make your vendor extend your requirements after your acquisition. This can allow your business the ability to free critical cash flows. Don’t be fooled thinking that the increase in cash flow will pay for you acquisition. This can help with temporary lulls in businesses that naturally occur after changes in ownership. One of my students got the main vendor to extend the requirements of the net 30 to one year, no interestless payment. It works well for my students and vendors have established relationships that have the potential to survive for life.
2. Share credit letters – depending on what type of vendor you have (and your relationship with them) sometimes vendors will be willing to expand or share credit letters with clients to help them. For example, a construction company that requires materials such as countertop granite may be able to go to granite wholesalers and instead of profit they can share some of their credit letters to finance part of the construction. Clearly the vendor will be compensated by the future business and the spread of letter of credit.
3. Trading services for materials or services such as General Contractors can offer trading services for materials. A grocery store can share space for warehousing with food suppliers instead of products. Unlimited possibilities.
4. Investors of equity – vendors often become squeamish investments in clients because there can be changes in perceptions of relationships. I think this can be a perfect marriage between two businesses if done correctly and with consideration. For example, a business that struggles has passed debt against smaller vendors. New parties can get a business and share a portion of shares in the company to complete debts that are due in the past. Vendors are not in the habit of investing in their clients; But there may be times and places where it is needed for the survival of all parties.
5. Leasback strategy – this is a strategy that you can use with equipment vendors. Existing businesses have $ 200,000 in equipment. You sell equipment to equipment vendors and in turn. As a result, you relieve cash to help buy your business.