On Bended Knee Will that big-name client end up making—or breaking—your business?

Growing businesses have always had to be quick and nimble tocompete in the big leagues. The concept of getting the sale now andadapting to fulfill the orders is practically ingrained in theentrepreneurial fast-growth mentality. But when times are tight,you have to be particularly careful about what customers you takeon and under what terms. Winning a big client could either fulfillyour dreams of steady income for the next six to 18 months and adda big name to your resume or bankrupt you faster than you can say"widget."

It all depends on how strategically you plan, experts say.Entrepreneurs tend to manage from the gut and fail to thinkinstitutionally, says Jeffrey Bolton, managing partner withaccounting firm Daszkal Bolton LLP in Boca Raton, Florida. "Sogoing into a deal, they don't do the legwork," he says."They don't have the firepower internally to figure outwhat their bid should be and how to monitor the bid."

Before bidding on any project, make sure you do hard cash-flowprojections and job costing, taking into account a host of factors.First up: "If the job is big enough, will [you] have theinternal capacity to produce it without having to grow [your]company to handle that one contract?" says Bolton. Having togrow to support new business isn't necessarily a negative, headds, but that client may take up a big part of your business."And when the client knows that, they can squeeze you,"he says.

If you do have to increase capacity or buy special equipment toservice a large customer, get that cost covered upfront, advisesRay Silverstein of President's Resource Organization, a nationwidenetwork of peer group forums for small-business owners. That meansa long-term supply contract and an agreement that the client willbuy the equipment if they cancel the contract within a certainperiod.

Next, set the payment schedule in stone so customers won'tleave you in the lurch. "If they stretch out [payments], theycan cripple you with cash-flow problems," says Silverstein.Even when they don't pay late, the amount a major customer owesyou can be so significant, you simply can't afford the risk oftaking the project without some payment upfront. "You have todetermine the maximum amount of accounts receivable you'rewilling to have with an account, whether it's delinquent ornot," advises Silverstein. If that amount is $100,000, forexample, and the customer puts in an order for $175,000, then$75,000 needs to be paid upfront.

Price It Right

The other big danger for entrepreneurs is underpricing."It's a widespread problem," says Norman Scarborough,associate professor of business at Presbyterian College in Clinton,South Carolina. "Entrepreneurs think customers are soprice-sensitive that they always have to offer the lowest price,when, in reality, small companies have much more to offer becauseof their size"-such as personal attention, a customizedapproach and speed.

That's how Mike MacMillan, 47, president and founder of NewYork City-based MacMillan Communications, positions his company'sPR services. "One of the advantages of being a smallerorganization is that you're more efficient, so you have loweroverhead," he says. Rather than charging less thancompetitors, he offers clients more bang for the buck."We're able to put more of the budget directly intoaccount work rather than overhead."

Of course, some businesses can't afford not to compete onprice, particularly in manufacturing, where cost is a big factor.And often, small businesses will bid dangerously low in order towin business, only to find very little profit in the project. Thekey is to ask how important that business is to your future growth,whether you can cover the cost of the project, and whether it fitsinto your strategic plan even if you don't make money onit.

When he started his accounting firm in 1991, Bolton kept theincome curve high throughout, but once he had work year-round, hebegan to selectively ask clients to pay more until he wasprofitable. But that strategy can be a challenge. "You canbury yourself in volume and enjoy the rush of getting thebusiness," Bolton says. "If you're trying to build areputation, that foot in the door is necessary, but you have tohave an institutional mind-set, and not serve an institutionalclient with a mom-and-pop mind-set."

C.J. Prince is executive editor of CEO Magazine. Shecan be reached at cjprince@chiefexecutive.net.