Protecting your bottom line from price-gouging vendors

Here's a scenario that happens all the time in acquisitions (especially to first-time buyers):

Let’s say you’ve finally bought a business, and you’re getting settled in as the new owner.

The previous owner’s vendor contracts are up for renewal soon.

You’re confident things will go smoothly...

Until the first vendor sends over a quote.

It’s a 15% price increase.

No explanation, no nothing — just a bigger number.

You email them asking why, only to hear:

”The old rates were tied to a special arrangement with the previous owner. We’ve updated them to reflect our standard pricing for new accounts.”

Translation:

They don’t know you, and they don’t trust you.

And, to put it bluntly... it’s easy money.

How do you avoid this situation?

By proactively building a relationship with your vendors during and after the acquisition!

The good news is, getting on a vendor’s good side (and keeping them from jacking up your rates) is a straightforward process.

Here are a few strategies you can use:

1. Have the previous owner introduce you personally to all their largest vendors

This is the best place to start.

If the vendors are local, then that means literally walking into their office with the seller, and having him introduce you.

“Ben, this is Bob. Bob, meet Ben. Bob’s our vendor, and we’ve been with him for 30 years,” and so on.

From there, we can use that intro as a jumping-off point to lock in the same terms the previous owner had.

If they’re not local, then you’d do this over a three-way phone call.

2. Send the vendor a gift

If your business really relies on a big vendor, then you don’t want to stop at just a warm intro.

Go out of your way to put your best foot forward, like sending the owner a bottle of their favorite wine or whiskey.

3. Establish constant contact with the vendor

To make the biggest impact, visit them in person multiple times throughout the year.

This is especially important if this vendor dictates your pricing, and they renegotiate the terms every year.

Take them out to lunch, and tell them about your business plans.

Talk about how you’re excited to start scaling, and how you’ll need more of their product.

The key thread through all three points here is:

If you want to stay top-of-mind and get the best pricing possible, you need to establish an early and ongoing relationship.

You’ll continue to get preferential treatment if you put in the extra effort.

Because a successful acquisition isn’t just about getting a good deal up front.

It’s about building strong and long-lasting partnerships to help your business thrive.

Want to learn more about the ins and outs of buying your first business?

(Or, how to invest passively as a silent partner into deals?)

Fill out our 2-minute Investor Survey here, and we’ll send you more info to help you get started.

And stay tuned for the next issue of the Acquisition Ace newsletter!