M&A Advisor Tip – When You Can’t Fix Customer Concentration Issues

As a general rule, no one customer should account for more than 20-25% of your company revenue. While having large customers can be good for your bottom line, it introduces risk to the next owner.

Our best advice: Anticipate the problem. Act now to grow your business with other customers and/or secure long-term transferrable contracts with your top accounts.

The backup plan: If you’re ready to move forward with a sale, and customer concentration issues are what they are, help buyers see:

  • Where you have multiple connections inside the customer organization, with more than one decision maker, influencer, and day-to-day contact
  • That you work with more than one customer location or division, with separate purchasing agents
  • How a disruption in the relationship would cause a disruption in the customer’s business
  • How the company relationship has lasted for many years

If buyers perceive a risk in customer concentration, they will probably allocate a certain amount of the purchase price to seller earnouts or other contingencies. Protect your interests by demonstrating where concentration issues are not as hazardous as they might seem.

What our clients are saying...

“It is a privilege to write a letter of recommendation on behalf of Business Transition Strategies. …As with any family business, negotiations need to be handled delicately and, as with any sale, both parties need to be satisfied with the end result. Quite frankly, without their help, this could not have been achieved. John Howe and Ken Schaefer skillfully analyzed the books and were able to bridge the gap between the sellers’ belief of what the company was worth and its actual worth. Their style is objective, straightforward, thorough and kind in the delivery of their assessment. After the sale was achieved to both parties’ satisfaction, John and Ken were hired to help with the adjustment of the acquisition and the financial health of the company moving forward. I can highly recommend this talented group of experienced business advisors to any company in need of clear and thoughtful company planning and adjustments.”

- Jane Longden

Decora