Financial Relationship Strategy. - DMC Audio Message - Friday, April 17, 2009 - 11:24 AM

Hi this is Doris.

Working with financially healthy vendors is smart, but how does one know if their sub-consultant, software company, insurance agent or even their landlord is in trouble? Yesterday market news announced the largest chapter 11 bankruptcy in US history made by General Growth Properties. GM is on the fringe of a managed bankruptcy, and it makes you wonder whos next?

Wondering is not a very strategic method to tap into the complex interdependencies regarding vendor relationships. And panning through publicly issued financial information can be more than cumbersome for the non-accountant. But there needs to be some method of diligence so your firm does not end up getting dragged into the financial troubles of another. If the general contractor goes under, there's a toppling effect.

Using professionals to read financial information of an interdependent company is a must if youre not an accountant. For instance, terms "accumulated deficit", "debt to worth" "current ratio" are all key indicators of whether companies have financial challenges. In addition, credit histories are an indicator of how someone pays their bills, and referrals from industry peers in respect to credit can be even more powerful for choosing who you do business with. Ask your vendors: how is business? Most people will be clear with you in telling you if the phones are ringing off the hook or if their projects have just stopped.

Think of the key areas: if your vendors were in trouble, how would that impact your company? Be aware of the following: Accounts Receivable bad debts, Landlord is in arrears on Real Estate Taxes, Life Insurance Company gets Tarp money, the Bank cuts your credit line. Its easy to analyze these items, your business relationships, and your vendors, as a strategy to reduce your risk.

Thanks for listening!

http://www.dmcsystems.com

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