Hiring Before the Contract
Rumen owns a small Varna company that installs solar panels. He has 9 employees and annual revenue of BGN 1.2 million. A large hotel group has verbally promised a BGN 400,000 installation contract starting in 6 weeks, but no contract is signed and the procurement manager says paperwork will take 'a month or two'. To deliver on time, Rumen would need to hire 5 installers immediately on permanent contracts and lease a second van for BGN 1,800 a month on a 24-month lease. He has BGN 70,000 in the bank and a BGN 50,000 overdraft, mostly unused. His current projects already use his team at about 85% capacity. If the hotel deal falls through, the new hires would be underutilised and the lease would still be payable.
1. Identify the legal and financial risks of hiring and leasing before the contract is signed.
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The main legal risk is that employment and lease obligations are binding regardless of whether the hotel contract materialises. Permanent employment contracts in Bulgaria create notice periods and severance exposure, so dismissing 5 installers if the deal collapses would be costly and slow. The 24-month van lease is a fixed liability of BGN 1,800 a month, or BGN 43,200 over the term, and cannot be cancelled easily. The financial risk is a mismatch between committed costs and uncommitted revenue. Rumen's buffer is BGN 70,000 cash plus a BGN 50,000 overdraft, so his total liquidity is BGN 120,000. Five installers plus a lease could consume much of that within a few months if no revenue arrives. There is also an opportunity-cost risk: his team is at 85% capacity, so new hires may be needed anyway, but hiring five at once is a step change. The verbal promise has little legal weight without a signed contract or at least a binding letter of intent, so Rumen should not treat it as security.
2. Recommend a staged commitment strategy that protects Rumen while keeping the deal.
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Convert the verbal promise into something with legal weight before committing. Ask for a signed letter of intent, a framework agreement, or a purchase order with a cancellation clause, and a deposit or advance payment. Then stage the commitment to match the risk. Hire in two waves: two installers now on fixed-term contracts tied to the project, and three more only when the contract is signed. Use subcontractors or agency labour for the peak rather than permanent hires, which shifts flexibility to the supplier. For the van, prefer a short-term rental or a lease with an early-termination option over a 24-month lease, even at a higher monthly rate, because the flexibility is worth more than the saving. Keep the overdraft as a reserve rather than spending it. Set a decision date, for example four weeks before the start, at which Rumen either has a signed contract or scales back. This preserves the relationship with the hotel group while capping downside at a level his BGN 120,000 liquidity can absorb.