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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.

 

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