Choosing the best supplier for your small business start-up is essential to get right. Our handy free supplier checklist will help you know what to look for when selecting a potential business supplier.
Finding the best business suppliers for your start up is critical. The best business supplier will ensure you can deliver products and services to your customers – whether the supplier keeps your office IT equipment operating or delivers materials used to create products or deliver services.
Get it wrong, and a poor supplier or supplier failure can leave your business unable to deliver to your customers, and could cost your business money if the supplier collapsed. Supplier failure is a major cause of small businesses running into difficulty, and even sole traders can face problems if deliveries don’t arrive or goods aren’t what you expected.
Our helpful supplier checklist can help you make an informed choice when it comes to choosing a supplier. If your business relies heavily on a particular supplier, be sure to assess several potential suppliers to pick the most reliable one. Even a basic checklist can save headaches caused by a problem supplier later on.
1. Check the supplier’s capacity
Is the potential supplier able to fulfil your order requirements, and on what timescale? Ask about their ability to scale capacity should you increase your order volume and how much notice is required. Having a flexible supply capacity lets your small business respond to market changes.
2. Conduct financial due diligence
Choose a supplier in good financial health – a strong balance sheet, cash reserves, and a consistent financial performance are all good indicators. Look at company accounts and annual reports or using a service such as DueDil is a cheap way to check a supplier’s health.
3. Check supplier credentials
A supplier that invests in its workforce, customers and products is a good bet. Look for clues such as certification and accreditation to business organisations, or obtaining ISO standards or investor in people awards. Check how responsive the sales teams are, and how quickly they respond to questions.
4. Look for customer recommendations
Ask the supplier for references, particularly businesses that are similar in size or age to your business. Ask the referees who they would recommend as suppliers – and ask about their experience with previous suppliers to understand which suppliers should be avoided.
5. Check supplier communication
Working with a supplier is like any relationship – good communication matters and helps avoid costly problems. When things go wrong, having a responsive supplier that communicates what’s happening is vital. Check how a supplier will communicate in the event of a problem.
6. Agree a service level agreement
For some suppliers, it’s worth getting terms agreed for how the relationship will work. This can cover what will happen if deliveries are late or the goods and service are below an agreed standard. The supplier will also expect the same from you – usually around order timing, payment and processes for changing capacity or delivery schedules. Good suppliers will be willing to discuss a service level agreement.
7. Supplier back-up plan
Even good suppliers can struggle, especially in a tough market. Make sure you have a plan B in case a supplier can’t fulfil an order or goes into administration. Understand what supplier failure would mean for your company, and establish how long you could continue to operate until you found an alternative supplier. Ask the potential supplier what contingency plans it has in case it can’t deliver – some suppliers have agreements with other, similar suppliers who can step in when there’s a problem.
8. Conduct financial planning
Share your business growth plan with potential suppliers, and negotiate any discounts – such as cheaper pricing for bulk orders – before you sign up to them as a supplier. When signing, agree how long the contract will last, and on what basis you can terminate the contract such as late or missed deliveries. Ensure pricing reviews are included so you’re not locked into an expensive contract if a more competitive supplier becomes available at a later date.
Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.
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- Entrepreneurship – from ideas to reality
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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.