In my experience counselling entrepreneurs, few decisions turn out to be as regrettable as finding out that they had chosen the wrong partner overseas.

A bad choice here works significantly against the business, as it becomes so hard and costly to fix.

Differently from operational or commercial conflicts between the parties, which may emerge long time after a relationship will have started, entrepreneurs may anticipate potential legal and financial problems before contracts have been signed.

Make use of the good practice of a mini audit, which allows to identify – early in the process – important signs of distributor’s good or poor management of cash, investment, and legal compliance.

The advantage of having a non-disclosure agreement signed prior to an audit is twofold. It will provide the candidate with key business data for an informed decision (future sales, marketing investment, assets required – hence minimizing entrepreneur’s risk and liability here), and it will leverage the entrepreneur’s access to candidate’s key compliance information. Documentation may include recent balance sheets, taxpayer returns, corporate and legal documentation, quality certifications, to name a few.

The practice of an incoming audit on the potential distributor as part of the entrepreneur’s selection process will undoubtedly raise standards. Beware of a potential distributor who may not be willing to take part on this exercise and avoid presenting themselves as solid partners for the growth of your business.

As a side comment, I remain surprised to know that few companies going overseas adopt the practice of auditing their potential distribution candidates. In my experience this strategy is highly recommended and, in some instances, even required. The benefit of such practice by far outweighs its intrinsic and limited cost.

(image credits to Vidal Mayor, Fueros de Aragón, by Vidal de Canellas, 1252.)