Are You Protected?
Imagine for a moment that your biggest client wants to double, even triple, the amount of business they do with you. Your first reaction may be one of excitement. Or, maybe you have some concerns about fulfilling the order.
But the factor most business owners don’t consider is the dependency your business would have on that one client.
There are 8 Drivers of Business Value. What a business scores in each of these drivers helps to determine the value of the business. One of these drivers is used to evaluate the dependency your business has on any one particular client. As a business owner you need to know this information for two reasons:
- The Short-Term Impact - We all know the saying, “don’t put all your eggs in one basket.” If something happens to your biggest client it will have a direct impact on your business. If the dependency is too strong, you may not be able to withstand a decline.
Often times, owners consider the market, and even industry, of clients when considering if they have too much business "in one basket." The truth is there are other potential issues that often are not considered. What if the owner of your biggest client passes away? What if their business is impacted by a natural disaster?
There are many elements that your business cannot control that could impact the buying power of your biggest client, which can put your business at risk. To protect your business there should be a strategy to diversify your client base.
- The Long-Term Impact - One day, whether it be five years or 20 years from now, you’ll want to exit your business. Beyond operating today, most business owners don’t stop to consider what a strong dependency on one client does to the eventual sale of their business.
You want to maximize your investment and make the eventual sale of your business as profitable as you can. Having a strong dependency on one client makes a buyer nervous. A buyer will assume that there will be clients that will leave when the ownership changes hands. Your competition will use the change in ownership to try to win business. And when a buyer is nervous, they tend to offer less for your business, or they walk away.
Buyers don’t buy history, they buy future streams of profit. If a client might leave and it’s a big portion of your business, a buyer won’t take the risk.
Understanding your dependency on clients allows you to create strategies and to diversify your profit, providing additional security. This protects your business today and makes your business more sell-able down the road. Don’t wait to discover what you need to know to protect your business now and for the future. Take the Value Builder Score below and talk to one of our business advisors now.