When I buy a business, I don’t just evaluate its customers and employees. I also look closely at its vendors. Over time, I’ve learned that vendor relationships can make or break an acquisition. They determine pricing, credit terms, supply chain stability, and sometimes even customer experience.

Early in my career, I underestimated how important vendors are. I assumed as long as the business had customers and revenue, the supply side would take care of itself. That was a mistake. In reality, strong vendor relationships are often just as valuable as customer contracts.

Why Vendor Relationships Matter

Vendors are the backbone of operations. They provide the products, materials, or services that allow a business to deliver value. If vendor relationships are fragile, the entire company becomes unstable.

Vendor relationships impact:

• Pricing power: Favorable terms increase margins.
• Credit terms: Longer payables improve cash flow.
• Reliability: Strong relationships reduce disruptions.
• Customer service: Vendors that deliver on time enable businesses to serve customers better.

When I evaluate a business, I always ask myself: How strong are its vendor partnerships, and will they transfer to me?

My Early Mistakes

In one acquisition, I didn’t realize that the seller’s personal friendship with a vendor was the reason for favorable pricing. After closing, that vendor raised prices significantly. Margins shrank overnight, and profitability dropped.

In another case, I assumed vendor credit terms would continue automatically. Instead, the vendor required me to prepay until they built trust. That tied up cash I hadn’t planned for.

Both experiences taught me to evaluate vendor relationships with the same rigor as customer relationships.

How I Evaluate Vendor Relationships

I now use a structured framework when reviewing vendors during diligence.

1. Dependency
How much does the business rely on each vendor? If one vendor supplies 70% of materials, that’s high concentration risk.

2. Pricing Terms
Are prices competitive, or are they inflated? If favorable pricing is tied to the seller personally, I need to know whether those terms will transfer.

3. Payment Terms
Do vendors offer net-30, net-60, or cash on delivery? Longer terms strengthen working capital.

4. Reliability
Do vendors deliver on time, consistently, and with quality? Even small disruptions can ripple into customer dissatisfaction.

5. Relationship Strength
Are vendors partners in the business’s success, or are they purely transactional? I prefer businesses with vendors that view themselves as long-term partners.

Questions I Ask About Vendors

During diligence, I ask sellers questions like:

• Who are your top five vendors, and how much do you spend with each?
• Do you have written contracts or handshake agreements?
• Have vendors ever increased prices unexpectedly?
• Would these vendors continue the same terms with me as the new owner?
• How do vendors view the company’s payment reliability?

The answers give me insight into both risk and opportunity.

How I Protect Myself

When I buy a business, I take specific steps to protect vendor relationships:

• Meet vendors early: I introduce myself before closing or immediately after to reassure them.
• Negotiate continuity clauses: In some deals, I include language that vendors must honor existing terms.
• Build goodwill: I pay vendors on time, communicate transparently, and treat them as partners.
• Diversify supply: I avoid over-reliance on a single vendor by developing alternatives.

These steps reduce surprises and strengthen relationships from day one.

Mistakes I’ve Seen Other Buyers Make

I’ve seen buyers assume that vendors will stay loyal no matter what. That’s not always true. Vendors sometimes prefer working with the seller and may reconsider relationships when ownership changes. I’ve also seen buyers cut costs aggressively by pressuring vendors, which backfires when service quality suffers.

The lesson is simple: vendors are partners, not just suppliers. If I don’t treat them that way, the business suffers.

Why Vendor Relationships Affect Valuation

Vendor strength affects valuation because it impacts both margins and stability. A business with long-term vendor contracts and favorable terms is worth more. A business with fragile or handshake-based vendor arrangements is worth less.

That’s why I always weigh vendor reliability heavily in my pricing and deal structure.

How I Strengthen Vendor Relationships Post-Acquisition

After I buy a company, I make it a priority to strengthen vendor ties. I:

• Visit key vendors in person to build trust.
• Share growth plans so they understand future opportunities.
• Negotiate gradual improvements in terms as the relationship matures.
• Recognize them as partners publicly, which deepens alignment.

Vendors often appreciate it when a new owner takes the time to invest in the relationship.

Final Thoughts

I’ve learned that vendor relationships are one of the most overlooked aspects of acquisitions. They determine costs, cash flow, and operational reliability. Strong vendor partnerships can increase valuation and make transitions smoother. Weak vendor relationships can create hidden risks that erode profitability.

That’s why I evaluate vendor dependency, pricing, payment terms, reliability, and relationship strength carefully before buying. And after closing, I invest in building trust and partnership.

Because in the end, acquisitions aren’t just about customers, they’re also about the ecosystem of vendors that keep the business running.

I continue sharing my acquisition playbook, strategies, and lessons at DrConnorRobertson.com, where I document the realities of building durable businesses deal by deal.