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Why big is not always beautiful

Without careful management, the excitement of winning a large contract can quickly turn to despair for small businesses.

Signing up customers is rarely straightforward, so getting a large company on board early in its development can be a real shot in the arm for a start-up business in particular. High profile contracts can be seen as validation of the business model and act as a catalyst for other companies to sign up.

But taking on a contract that accounts for a large percentage of a small company’s turnover creates a number of risks, both operational and financial.

Don’t hold yourself back

One of the main risk factors is the business’s ability to finance the contract. Small businesses can be reluctant to raise external finance, which may limit their ability to secure large contracts in the first place as well as their capacity to manage such contracts. Trading only within working capital can hold a business back from achieving its growth targets.

Cash flow management is still important of course – any small enterprise with a number of large contracts that gets the payment scheduling wrong will go out of business.

It is always worth discussing the implications of large contracts with your bank. Some companies schedule regular financial briefings with their bank on the basis that they might be more willing to cut the business some slack if they know what it is doing.

No time to sell yourself short

Financial controllers play a vital role in ensuring that contracts are priced at a level that is profitable and that no single client becomes dominant in terms of percentage of turnover.

The business owner should sit down with staff to work through the requirements and openly discuss how they will manage problems. If the contract requires additional staffing and resources, the company needs to consider whether these can realistically be put in place in time.

Once a contract is up and running, there is a temptation to move on to the next piece of business. However, by arranging ongoing reviews to allow the business and the customer time to review progress and identify issues, the business will get an insight into any other opportunities and be well placed when the contract comes up for renewal.

Make sure the numbers stack up

A large company will probably want to know how a smaller supplier will manage the additional financial requirements generated by the contract, especially if they will not be receiving regular payments.

Economies of scale may come into play, but in some situations the unit cost of production may increase for larger contracts, while the business may also have to implement new quality standards or move to new premises.

The up-to-date financial data available to users of cloud-based accounting packages such as Big Red Cloud will make it easier to assess the potential impact of a large contract and determine whether it is economically viable.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

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