Should I turn down a big contract?
We are a 17-man IT consultancy which has been running for just over a year. Our biggest client has just offered us a massive piece of business in its US and Paris offices, starting immediately. The contract is a profitable one, which would triple our turnover. The problem is that we would have to double our staff numbers to service the contract straight away. I have three main concerns. The first is the disruption this would cause to the business, at the expense of my other clients. The second is becoming over-reliant on one customer. The third is the strain on the company’s funds that will be made when new staff are hired. I’m starting to think that turning down this contract may be best for the health of the business. What advice can you offer?
A. David Richards of IGF Group writes:
Sudden expansion brings many challenges and such opportunities should be considered in detail before any decisions are made.
Considerations should include whether you can accommodate the volume proposed. Will resources need to be withdrawn from other projects? What happens if the contract is cancelled, or if having completed the work they are unable to pay or make protracted payments? How will you finance payments to your increased staff base and what are the cashflow implications?
The expansion could either enhance or jeopardise the rest of the business. After all, new staff employed for expediency rather than quality could reflect badly and lead to the withdrawal of the contract.
Invoice finance may enable you to fund the expansion, though any provider is likely to restrict the funding on a principal customer to an agreed maximum percentage of your total sales ledger depending on their credit rating.
Discuss all these matters with your client, who should understand. You may be able to start the contract on a staggered basis, enabling you to control the expansion and ensure appropriate funding is in place while maintaining quality and service levels.
Spreading your base of customers, with a limited reliance on any one is usually sensible business practice.