08 Aug 4 Ways to Eliminate Customer Concentration and Build Confidence with Prospective Buyers
If you are preparing your business for sale, you need to start to think like a buyer. Customer concentration is a red flag to potential buyers. A company with more than 15 percent of its revenue dependent on one client is vulnerable. That client might leave shortly after you sell your business. A buyer will recognize this risk. Follow these tips to minimize risk for the potential buyer and better position your business to sell at a premium value:
Remove the Client Trap
A lot of business owners fall into this trap. It’s easier to please and upsell existing clients than it is to look for new business. Start looking for “like clients.” A good client is like a map to new clients. Identify key components—such as size, problems, or needs—and seek out new customers who fit the profile.
Ask for Referrals
Happy clients are happy to refer you to others. If you don’t ask for referrals, you won’t get them. Stop by or give your best customers a courtesy call. Let them know you are looking to grow your business and ask if they know of any other business that could utilize your services. If not now, ask them to keep you in mind. In some cases, businesses offer a referral fee. This may or may not work for you, but it’s an option to reward the referring party.
Seal the Deal in Writing
When you have a customer or client who is a significant portion of revenue, get the deal in writing. Spell out the duration of the agreement between the customer and your business. Although contracts can be nullified post-transaction, at least the contract minimizes the risk of them leaving and gives the new owner some peace of mind.
Remove Sole Dependency
With key accounts, the customer often becomes dependent on you. Start to transition the responsibility of client relations and management to another team member now, even if you aren’t looking to sell right away. The customer needs to transfer their confidence from you to the business. This will add even more assurance to the prospective buyer.
