You want to do business with a certain company, but you need to know that company is for real and capable of being a sound business partner. What are the warning signs a business may not be all that it claims? Here are the signals and how you can manage this risk:
- An over-eager owner – If you find an owner willing to provide everything you request without question — investigate further.
- Questionable start date – If the owner states they have been around 10 years and you have never heard of them, dig deeper.
- A pretentious business name – "Global Financial Equipment Sales" sounds good until you find out it is three guys working out of a storefront. Check it out.
- Unexpectedly robust financial statements – The owner supplies information showing a current ratio or net worth well above the industry median and yet the company is a start-up. You'll need to do a thorough business credit check.
- Atypical trade references – If many of the companies used as references are outside your industry, watch out— they may not be valid or relevant.
- Trade references all from one industry – Telecom, business equipment, financial services, etc. You'll need to investigate, pulling a quality business credit report.
- Business principals involved in other failed or fraudulent enterprises – If you check the "Character" of the principals and you find business failures — can your risk management profile handle this?
Global Financial Equipment Sales’ sounds good until you find out it is three guys working out of a storefront.
- Be aware of the many signs a business may not have sound credit.