Tender Process, Showing accounts

[Speed1972]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
Not an issue in itself, However they have asked us to supply audited management accounts. Not sure if this means audited accounts or management accounts (I'll ask for clarification depending on the responses here)
This is were it gets a bit tricky. They are our only customer. The contract is big enough that it keeps busy, So showing them our accounts will obviously show how much profit we make from their contract. Obviously they want to make sure were not going to fold but would having a healthy profit be a negative (usually not) but it'll be profit from just their company.

Could they use that info to beat us down on costs?

Thanks for reading

 

[GERAI LTD]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
Not an issue in itself, However they have asked us to supply audited management accounts. Not sure if this means audited accounts or management accounts (I'll ask for clarification depending on the responses here)
This is were it gets a bit tricky. They are our only customer. The contract is big enough that it keeps busy, So showing them our accounts will obviously show how much profit we make from their contract. Obviously they want to make sure were not going to fold but would having a healthy profit be a negative (usually not) but it'll be profit from just their company.

Could they use that info to beat us down on costs?

Thanks for reading

Do you have an agreement signed with that party?

 

[Baines Watson]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
Not an issue in itself, However they have asked us to supply audited management accounts. Not sure if this means audited accounts or management accounts (I'll ask for clarification depending on the responses here)
This is were it gets a bit tricky. They are our only customer. The contract is big enough that it keeps busy, So showing them our accounts will obviously show how much profit we make from their contract. Obviously they want to make sure were not going to fold but would having a healthy profit be a negative (usually not) but it'll be profit from just their company.

Could they use that info to beat us down on costs?

Thanks for reading

I think it would be safe to assume that they are looking to re-negotiate the price! I'm guessing they are opening it up to other companies to tender as well at the same time so be prepared.

You should seek clarity on whether they want management accounts (internal reports for business performance) or audited financial accounts (filed with external authorities like companies house & HMRC), the two are very different things and you don't want to provide more then necessary information to them which they might use as leverage. I'm fairly confident that if they are looking to assess your financial strength then it is audited financial accounts they want, management accounts are not typically audited.

Apart from the financial side of things, when you make your case in the tender, highlight your track record and how you have a long history of understanding and fulfilling their needs, any other supplier will have to build that trust and relationship from scratch so you have that advantage already, be sure to use it, it's not always about the price!

Good luck!

 

[WaveJumper]

Reading between the lines would seem pretty clear they are looking for change, doesn’t answer your main question reference the accounting request which needs clarification however I would suspect they looking for full costings including profit margin on contract.

I say this as someone who has been that side of the table comparing various tenders for services, the profit made not an issue as such however pretty sure they will be looking at the break down of your costs in detail. Hopefully your profit % is not “out of kilter” to costs.

Personally I would be a little concerned if this is your only contract on the position or room you have to negotiate, but then I don’t know your business or your competition. I assume you have a back up plan in place in case this all goes south.

Perhaps time to reflect is it wise to have all your eggs in one basket. I wish you all the best and hope it goes well

 

[pentel]

Very few companies have audited accounts, there is no legal requirement to have an audit below a certain level.

 

[JEREMY HAWKE]

This is madness in 30 years of dealing everything and everybody I have never heard of this

I would be telling them to sling their hook but that's me

Its a fact that customer come and go for various reasons and sometimes for no reason at all @WaveJumper has a point about having all your eggs in one basket . Its very easy to get comfortable but this is a false sense of security Having one main customer spell ruination because on average many are only customers for a short while

 

[Sean Lee-Amies]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
Not an issue in itself, However they have asked us to supply audited management accounts. Not sure if this means audited accounts or management accounts (I'll ask for clarification depending on the responses here)
This is were it gets a bit tricky. They are our only customer. The contract is big enough that it keeps busy, So showing them our accounts will obviously show how much profit we make from their contract. Obviously they want to make sure were not going to fold but would having a healthy profit be a negative (usually not) but it'll be profit from just their company.

Could they use that info to beat us down on costs?

Thanks for reading

So you're looking at a scenario where 100% of your revenue could disappear imminently?

I'd say this is a major threat to your business and alarm bells should be ringing. I don't mean to scare-monger, far from it, but in your position this would be my primary concern, not whether they are looking to reduce their spend.

It puts your business in a majorly weak position.

The problem with most management is that the vast majority of them are, frankly, not cut out to be managers. They are victims of nepotism and the Peter Principle, both of which only really serve to put the wrong people in the wrong place.

If you're facing a management change, there could be any number of silly reasons floating around in their heads to justify whatever they want to do next.

Maybe a new manager has existing contacts they trust more than you and know that deliver more for less?

Or they just love working with companies super local to them, or super remote?

I don't know what type of relationship you have with these new managers, but is it obvious that they just want to make sure you're not going to fold?

If they learn they're your only customer, they basically have as much power over you as a parent company that bought you out. You'll be solely reliant on goodwill for them not taking advantage of that massive amount of leverage.

Have you looked to see whether there are any new companies operating in the same niche as you? Maybe what was once very niche, is no longer so?

You know your business better than I, just trying to throw out some different perspectives for consideration! I wish you all the best

 

[WaveJumper]

Full accounts yes I agree but when dealing for example a cleaning or security or even marketing contract proposal for that matter especially when they are in the half M bracket you want to see a breakdown of all costs, staff, equipment, training, consumables bla bla, yes then a profit figure normally based on a % of all the latter everyone has to make a profit but you be surprised how many try to hide extra amongst everything else.

When you have perhaps seven proposals sitting on the table you be surprised how much they can vary ........ and they are in many cases taking over an existing workforce

I can hear those alarm bells ringing

 

[BubbaWY]

Certainly in construction, its not unusual to have to provide management accounts. Main contractors want comfort that you can fund the project and not go bump half way through.

It is irrelevant if they are your only client and you are making profit. What is relevant is whether they are getting value for money/competitive pricing from you. Something which your accounts wont necessarily highlight.

 

[Socio South West]

Customer no 1 - 100%???? A dreadful dreadful scenario....

It's pretty clear they are looking to hammer you down on price.

My advice to you is to go into negotiation with this thought in the back of your mind..... 'No Business is better than bad business'

You will be better to walk away if their best and final offer is anywhere near your 'death' price. Yes, it will be a mega upheaval for you - it may be best to voluntarily liquidate and start again in these circumstances.... but thats a little way down the road yet.

Please keep the forum updated as there are a number of ways this can go depending on your response to their request.

 

[fisicx]

A story told by my wife. She works in business insurance and spend most of her day assessing risk.

One company had 100% of their business with Biffa. All they did was make wheelie bin lids in different colours. They were assessed as high risk and credit insurance declined. Biffa decided they could get the bin lids made elsewhere and the company closed down overnight.

Another company made the foil wrappers for Quality Street tins. Nestle changed the wrapping and the company went bust.

Never ever rely on one client for your business @Speed1972. Risk underwriters will review your books and assess you as a high risk business.

 

[Chris Ashdown]

First I would go and meet the new management at there headquarters to find out if there are any unknown problems

New management often feel the need to bring in new or old idea's and it looks like in this case check out all existing suppliers and probably get 3 quotes to prove there is no wastage in the companies purchases, and at the same time do a risk assessment of there suppliers

I would guess you are at high risk to them awarding someone else the contract.

You and get your sales team to get off their arses and quickly find other customers or markets for your goods

 

[Speed1972]

Thanks Everyone, We provide a service that is very niche. In the past we've fought off competition from some VERY big players in a similar field, Who wont take on the type of work we do as to be frank its a right royal pain for them, But its what we've done for 20+years so its our bread and butter.

I have other companies in very different sectors so its not all our work, But a very sizeable chunk and would most definitely hurt

Do you have an agreement signed with that party?

Yes, Albeit with a 4 month termination clause.

 

[Mike MD]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
...

Good luck. As others have said, you have a large number of eggs in one basket.

It is firstly a lot to do with who has the power in this negotiation.

The fact that they are prepared to upset the apple cart by doing a formal process rather than directly negotiating with you suggests to me that they are already considering alternatives to your company providing the service, and that they are prepared to consider these alternatives. That gives them the power.

If you know that you are the best and cheapest in what you do, you can stick to your price despite giving them all the information, and display your profit in dayglo paint. If they try to negotiate, politely tell them the price again. You have the power.

I suspect though that the answer lies somewhere in the middle of these 2 extremes. So it just comes down to your judgement as to how bold you are going to be.

Finally, I think you don't own a business, you own a job. You haven't got anything that you are likely to be able to sell, since the income could be lost overnight. Seek new contracts if you want to run a business.

 

[TL Bids]

We are a small family business in a niche area. After 5 years of a contract there has been an upper management change and the company has asked us to tender for the work we already do.
Not an issue in itself, However they have asked us to supply audited management accounts. Not sure if this means audited accounts or management accounts (I'll ask for clarification depending on the responses here)
This is were it gets a bit tricky. They are our only customer. The contract is big enough that it keeps busy, So showing them our accounts will obviously show how much profit we make from their contract. Obviously they want to make sure were not going to fold but would having a healthy profit be a negative (usually not) but it'll be profit from just their company.

Could they use that info to beat us down on costs?

Thanks for reading

You could explain that due to the size of your business you are not required to produce audited accounts. I'd assume stat accounts - but yes wise to clarify. You could say, to avoid providing full accounts, "our business turns over less than £10m so we are not required to produce audited accounts. Your account is really important to us - so I've attached a financial credit score, which will hopefully show our stability"... Failing this, summarised or abridged accounts may better than full accounts. This is a standard requirements and rarely assessed by the same team. It should fall into a compliance check - so I'd see this as low risk for you personally. I'd think the tender itself or written proposal is also key!