Should I do a handshake agreement with my suppliers?

This article first appeared July 2, 2010.

Dearest Aunty B,

I have started a new business that is service based. I have some opportunities to distribute several great products that align beautifully with our core offering and values. I have engaged with their representatives, who are polite, friendly and enthusiastic for our common goal.

My problem is, when it comes to getting a commitment or agreement in place, they falter and say that they would rather not go with a formal distributor agreement and that we should “trust” each other. When I hear the words “I am a handshake guy” I can’t help but regard it with about as much credibility as the bloke who assures me he will still love me in the morning.

I want to do business with business. How do I build relationships with these individuals, access the product I wish to represent in my business, while making sure I have some “protection”? Or should I run from these operators the same way I should from the bloke with too much aftershave, a thick gold chain and an exposed hairy chest?

Thank you,
Old-Fashioned Girl

Dear Old-Fashioned Girl,

If you are an old-fashioned girl like myself you would find absolutely nothing wrong with a bit of exposed chest hair. In fact, I’ll do a deal with a bloke with a bit of exposed hair over a waxed chest any day.

Of course you must have a formal distribution agreement. Not to have one is to invite disaster in the door. Here is what you must do. Sit down with your accountant and/or lawyer and come up with a simple agreement that covers all bases, such as payment terms, return of faulty goods and so on. And then go and take the boys to a nice lunch. Tell them you understand the way they do business but that you do business in a more formal way. Then point out that you have come up with a compromise: a simple agreement that also is a protection for them against anything going wrong.

Tell them you expect this business to scale up, so while it may look like a small kind of matey deal now, big things will grow and you may as well do the annoying paperwork now rather than later.

Be your charming self and get them to sign by the end of lunch.

But a note of caution. Do some reference checking on them before you book lunch. Who else have they supplied and did the relationship work? What is their reputation like in the industry, as you will be associating your brand with theirs.

Old-fashioned girls can never be too careful, you know.

Good luck!
Your Aunty B

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