Reviewing commercial relationships
Is now the right time to review your commercial relationships?
Yes. And it shouldn’t take a global pandemic to prompt you to keep your affairs in order.
When your business is well established and running smoothly, it’s tempting to slip into an ‘if it ain’t broke, don’t fix it’ mindset.
But in reality, every business should regularly and periodically review their contracts and commercial relationships.
Key reasons to review your existing arrangements
Not only should this be part of your ongoing essential business housekeeping, but you should also pay particular attention to the following ‘red flags’:
- You want to improve your financial position
- You want to safeguard your business from any financial difficulties of a business partner
- You’re dissatisfied with the performance of a current supplier and looking for an exit strategy from an unprofitable agreement
- You need to align contracts with legal requirements and the direction of your business
If any (or all) of these sound familiar it’s time to review the quality and impact of your commercial relationships.
Where do you start?
Asking yourself ‘what’s working, what’s not working?’ is a useful way to kickstart the process.
From cleaning and maintenance contracts to agency and freelancer support, systematically work through your entire business and identify those relationships that would benefit from a review.
Revisit your contracts and highlight any existing clauses; these might include benchmarking, evidence of continuous improvement, exclusivity and minimum purchase obligations, all of which you may be able to use to start renegotiating a contract.
Depending on how strong your negotiation base is, you’ll have a number of options to consider:
- Terminate the relationship as a whole; or
- Negotiate a staged exit, or a lesser commitment
Bear in mind that when you look for an “agreement” with a commercial partner or supplier, not all the details may be included in the same document. The terms of the relationship may arise from various arrangements, so make sure you’ve gathered all the facts and understand how they relate to each other before you push ahead with your review. Seek advice from a trusted legal professional if you’re in any doubt – you certainly want to avoid being liable for breach of contract.
Is there a right way to end a commercial relationship?
If based on your review, you make the decision to terminate a contract, there are some important factors to bear in mind. It doesn’t have to get messy or unpleasant – it’s possible to end a contract without ending the business relationship. Above all, stay focused on what is going to serve your business in the long-term.
As a general guide to ‘exiting gracefully’:
State the facts
Avoid finger-pointing and blame even if there have been negative consequences and/or financial loss as a direct result of the relationship. Simply state the facts and figures that support your decision to end the contract.
For example, the termination may be necessary because of incompatible business goals, failure to deliver the projected ROI, differing interpretations of the contract’s objectives, or some other part of the relationship that no longer makes commercial sense. There’s no need to criticise the people involved or point out all the shortcomings. A brief explanation that the agreement is no longer meeting one or both party’s business objectives should be enough.
Tie-up loose ends
In some cases, you might be eager to get out of the arrangement as quickly as possible. But this isn’t always appropriate and it’s not right to leave the other party in an awkward or potentially costly situation. Work together to support a seamless closure that allows both parties to walk away relatively unscathed. Gaining a reputation as someone who bails on suppliers or partners could generate some seriously negative PR and cause irreparable damage to your commercial relationships.
A huge part of running a successful business is about utilising your resources and professional networks, so it makes no sense to cut off a certain person or company because of one less-than-perfect experience. Instead, focus on what you’ve learnt and take steps to make sure you don’t make the same mistake again.
Not sure if your commercial relationships and contracts are working for you?
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