GrowthBusiness.co.uk: Your gateway to entrepreneurial success

In times like these, you have to think the unthinkable.

This is particularly relevant for all of us in business as we grapple with our relationships with customers and suppliers.

Will we get paid by companies we once considered rock solid? Can we afford to enter into long-term contracts with suppliers who might not be able to deliver?

Spotting the inherent strengths and weaknesses of companies is now more important than ever. Here are some pointers of what to look for (incidentally these are also a very useful checklist of what to look for when acquiring a company).

Management longevity
Although there is an argument that management teams who have been at a company forever and a day may be complacent and even lazy, it may also show that the ultimate owner is a megalomaniac so is best avoided.

There is the counterpoint that the management team must know roughly what they are doing to have stayed the course. In any event, it is probably fair to say that constantly changing management is bad news for almost any company. 

If you need an example, look at the relative success of Manchester United and Chelsea and contrast the manager’s team with each club (no irate football posts here please).

Choice of auditor
Alleged big-time fraudsters such as Bernard Madoff and now Sir Allen Stanford both used small, almost one-man band auditors and we now seem to know what that’s led to. In both cases, if investors had looked at this (as some did) it would have sent out big warning signs. 

Likewise, look at a company’s accounts and check any funny accounting policies, not just the P&L accounts. It goes without saying that a good look at the balance sheet and the company’s borrowings is vital. 

Corporate governance
For years, the words 'corporate governance' resulted in a groan around most boardroom tables. Not anymore.

The excessive bonus culture of the investment banks has now been highlighted and yet it was for all to see for many years.

So beware if companies have an excessive or very aggressive remuneration policy, or where the boards of directors don’t have sufficient independent non-executive directors. Check the company car park for too many Aston Martins or Bentleys.

At the end of the day, corporate governance is about behaving sensibly and fairly to all stakeholders – shareholders, employees and creditors – not just directors.

Premises
There is an old adage that a ‘flagpole and a fountain in the foyer is the kiss of death’.  

Offices very much reflect the culture of a business – it is their shop front. Too big and plush is a warning sign, just as much as an obscure backstreet office which is totally at odds with the size and scale of the business you are dealing with. 

Customers
Another adage, ‘You are judged by the company you keep,’ is equally true in the world of business as it is for the people you choose to socialise with in your free time.

When dealing with a company that has a specific sector focus, such as property or construction, it’s fairly obvious that right now one needs to tread carefully. Even if you have dealt with someone for years, at this stage in the cycle it might be worth just doing your checks again.

Suppliers
I recently ordered a kitchen and put a deposit down without using a credit card. And yes, you guessed it – the supplier went bust and I lost my deposit.

When dealing with suppliers today, business practices that have been established for some time, like making advance payments based on trust, are probably just too high a risk to take. So try and use other methods like putting money into specific accounts or paying only on delivery if you can.

This also applies to people carrying out long-term service contracts or projects. Even in these lean times it may just well be worth paying more money for an established, reputable supplier rather than going for the cheapest option.
 
In these uncertain times, it pays to be a little paranoid.