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When should your small business say no to large commercial contracts?

It is not uncommon for me to meet new business owners who are tempted to take a major contract because it will get their business off with a bang. Tempting though this might be, my advice is to be cautious about ‘big money’ contracts, they may end up costing you more than you think.

Let me tell you about Chris, for instance, who decided to turn his passion for photography into a business. Chris had initially thought his business would focus on weddings and family portrait photography, but a few months in a friend offered him the chance of a commercial contract.

Chris jumped at the opportunity, he thought it would give him some financial security while at the same time boost his credibility in the industry.

To win the contract Chris quoted a set rate, believing it may lead to repeat business. Chris also refused to book in any private jobs for the five days he anticipated the shoot would take. His focus, he thought, should be purely on the commercial contract.

On the day of the shoot there were fewer participants than Chris had anticipated. He agreed to photograph eight people, but only five were available. He quoted on the basis that all eight would have a sitting, and because of that, he would need to return another day to complete the job. This turned out to be a diary nightmare, having all three in the same place at the same time could take weeks. Chris agreed to return on another two days to comply with the terms he agreed to in the contract.

Fast forward a few months and, having delivered a service and a product that the buyer was happy with, Chris is now waiting to be paid. The deadline for payment (28 days) has long passed and despite several calls chasing payment, it could be a few more weeks before his invoice is signed off. Chris’ commercial account balance is lower than it has ever been, and he is starting to regret taking the contract.

This isn’t a unique story.

At Ozlop, we hear all the time from small business owners who take on large contracts only to later regret it.

For Chris, the problems arose because the commercial contract ended up taking too much time and he had given a fixed price quote. The business he turned down to accept the commercial contract would have taken less time, meaning he would have been able to do more sittings. On top of that, waiting 60 days to be paid had upended his cashflow and he ended up having to borrow money to make ends meet.

The lesson here is that larger contracts should only be accepted once you have taken the time to understand the broader impact it has on your business. This means understanding whether the contract is profitable, instead of potentially becoming a drain on your finances.

Successful entrepreneurs know that there is no short cut to building a sustainable business. If a large contract seems too good to be true, that’s probably because it is.

Instead of being distracted by ad hoc business, focus on what your business does best and look for ways to build around that core strength so growth flows organically.

Sometimes the best decision for your business is to refuse a larger contract but knowing when to say no can be a challenge.

At Ozlop we work with small businesses to help them stay on top of the bookkeeping so they can stay focused on running a successful venture. This means when our clients need to make decisions about the direction of their business and whether to accept new contracts, they can quickly access their accounts and make informed choices.

The alternative is being left to deal with the stress of chasing payments from a large commercial customer who turns out not to be so profitable.

If you are interested in finding out more about how Ozlop can relieve some of the pressures of running a small business, please do get in touch.

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