When you’re considering taking on a new contract, you need to gather as much information about your potential client as you can find. While you might commonly do such “homework” to help you land the contract, research can also help you determine whether you want to do business with this company.

In this article, I’ll discuss questions you should ask before working with a potential client, and how and where to find the information that will give you the green light for doing business with them.

First of two articles

This first installment of a two-part series will discuss the reasons for and benefits of researching potential clients. Next week’s article will examine how such research can give you an edge once you decide to take the contract.

Is this client right for you?
One of the luxuries that contractors can afford after establishing their business is being choosy about clients. You might decide to pass on a contract if the client:

  • Has a poor payment history.
  • Has high debt ratios, pending legal action, tax liens, or has recently laid off staff.
  • Is difficult to work with, as evidenced by an oppressive corporate culture or a past pattern of unreasonable deadlines, shifting project focus, or poor treatment of contractors.

Get information through your personal contacts
If you know people who work for the potential client, give them a call to discuss the company. Otherwise, your best source of information is other contractors.

Find out if any contractors you know have worked for this company or if they know someone who has. You can also network at professional meetings and post messages on online message boards and listservs to ask questions such as:

  • Did the client pay invoices on time?
  • Did the client honor the terms of the contract?
  • How did the client respond to any unforeseen difficulties with the project?
  • Was the client supportive, or were contractors forced to work with minimal resources and cooperation?

This kind of information is best uncovered through your contact network and other contractors, because these personal interactions with a company will give you the most detailed view of what your work environment would be like if you decided to take the contract. For example, I opted not to go after a contract with one client when I found out that another contractor had left because the company’s disorganization and apparent communication problems prevented him from doing a good job. But once you exhaust your sources of local intelligence, it’s time to turn to the Internet.

Investigating credit history online
For contractors, one of the most important things to know about a company is its credit history. No matter what you find out from your network and other sources, you should also look online to find out about any liens against the company or legal action by other contractors or vendors.

One source for inexpensive credit reports is BusinessCreditUSA. For $3 per report, you can obtain information on a company’s credit rating, annual sales volume, and public records, such as bankruptcy filings and tax liens.

A more comprehensive—but more expensive—source of information is Dun & Bradstreet. Although the cluttered site doesn’t provide a clear path to company products, the company’s credit services can be helpful.

D&B’s eValuator reports provide a basic credit rating and include the number of payments placed for collection. To actually view the report, you will have to purchase a membership package: At the low end, you can get away with viewing a single eValuator report for $14.99. You do, however, have to register before seeing all of your membership options.

You can also find complaints filed against a company at the Better Business Bureau’s Web site. Click on the Check Out A Company link to access the search page. The results indicate whether a complaint has been filed with the company, the nature of the complaint, and the company’s response.

The BBB addresses several types of complaints relevant to contractors, including credit/billing problems, unfulfilled contracts, and nondelivery of goods or services. The search also lists when the business was started, alternate addresses and phone numbers, and other names under which the company does business.

While you shouldn’t rule out a client just because you find an unresolved complaint, keep it in mind if your work with the company forces you to deal with a similar issue.

What about recent layoffs?
Knowing whether the company has recently laid off staff can be helpful on several fronts. While it can indicate future financial trouble for the company, it can also point to increased opportunities for contractors if the company begins outsourcing work formerly done in-house.

Massive layoffs, however, undermine company morale, and you should be aware of this environment before you get on board, as you’ll likely be confronting reduced morale and less helpfulness among the people you’ll be working with.

You can find a list of tech companies that have made recent layoffs at Hoover’s Dot-Com Deathwatch. This page doesn’t provide details about the layoffs, but once you locate a client name on the list, searching news stories and press releases will turn up the information you need.

Researching private companies
Finding information on private companies can be more difficult than getting the skinny on publicly held businesses, although credit reports should still be fairly easy to obtain. However, especially in IT, many companies that themselves are not publicly traded are owned by parent companies that are public.

Research the parent company just as carefully as you would the potential client company. If a parent company stiffs vendors and contractors, you aren’t likely to get any help if you have to go searching up the chain for payment from your client.

In addition, knowledge about the parent company can shed light on your client’s challenges. For example, if the parent company’s statements and press releases indicate that a key goal is aggressive growth that could come only from your client company, you can bet that its executives are sweating over how to meet those goals. If you demonstrate to them that your expertise can help them do it, you will land that contract.

How do you research your potential clients?

What resources do you use when you want to find out more about an organization? Post your comments and suggestions in a discussion or send them to us in an e-mail.