Chapter 16
What do customers and suppliers look for?

It’s not uncommon for customers, suppliers or even potential key employees to request your financial statements. The reasons vary, but usually they want to verify your company’s financial ability to live up to its obligations and contracts.

Large customers
Say you are on the verge of hitting it big — gaining that large customer that will add 10 percent or more to your revenue and allow you to expand. But before the customer says yes, he may want to see your latest annual report. The request probably will come from the chief financial officer. Alert your own financial team and have it ready when he asks.

Customers are interested in a few key things: getting their freight to the right place, on time and in good condition. They also prefer a company that is responsive and easy to do business with.

Your financial statements are part of the evidence that you can live up to your promises. Large customers who deal with several trucking companies probably maintain databases that allow them to compare your numbers with those of other carriers. Obviously, they must respect the confidentiality of your information.

Good impressions are important here. Just as someone can tell a lot about your company’s values and culture by looking at the condition of your trucks, the degree of professionalism in your financial reports speaks volumes. Don’t send them a dog-eared photocopy. Send a report with a professional-looking cover or have your accounting firm send one directly, along with a letter of commentary on recent financial trends.

Potential customers are looking for a reasonable amount of working capital, current and debt-to-equity ratios that are within industry norms, and evidence of steady profits during periods of growth. A shipper wants some comfort that you can handle growth reasonably well. Sophisticated customers know that handling their account may test your financial shock absorbers, so they want to be sure you can handle it before they give you too much business.

Adding a significant amount of sales takes more cash than just the down payment on new equipment. If customers pay in 45 days, but suppliers demand payment in 15 to 30 days, you need additional working capital to support a significant increase in annual revenue. Consider how much cash new growth will require and where you will get it. Prospects also may check your footnotes to see that you have good banking relationships and adequate lines of credit to finance receivables.

Major suppliers
Suppliers have an obvious interest in your company’s financial health. Smaller suppliers must be satisfied with summarized financial information from Dun & Bradstreet. They base credit decisions primarily on your payment history as obtained from various credit bureaus and reporting companies.

But it shouldn’t surprise you that the credit managers of more important suppliers — fuel companies, tire wholesalers and major parts suppliers — may request a copy of your reports. They must verify your creditworthiness directly because they likely carry much larger balances for you than most other suppliers do.

Major suppliers are most interested in the average days to pay trade payables ratio. This ratio is rather difficult to compute from most trucking companies’ reports, but it can be done. Suppliers will verify this information by reviewing D&B credit reports and by calling other suppliers. They also want to know if you pay your payroll taxes regularly and keep up with your other loan obligations because governments and lenders have priority over them should you declare bankruptcy or otherwise fail.

Job seekers
Candidates for top management positions also may request financials. For key decisionmakers such as CEOs, division managers, controllers or chief financial officers, you should be wary of their judgment if they do not request them.
Such key individuals are looking not only for evidence that you will trust them with key information but also for security. No one wants to jump onto a sinking ship. If you have had financial difficulty, be frank about your plans for a turnaround. Perhaps there’s an opportunity to entice them with profit-sharing arrangements such as incentive pay.

In Summary
Outside parties besides banks and equipment leasing companies occasionally want to view your reports. Potential customers look for evidence that you can grow smoothly and comfortably. Major suppliers want to know how quickly you pay your bills and whether you are current with taxes, loans and other obligations. And candidates for senior management positions may scour your reports to confirm that your company is stable.