The Sunbelt New Mexico Blog

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.

 

Leadership Santa Fe

 

Leadership Santa Fe helps up-and-coming leaders develop high-level management skills and connects them to key players in Santa Fe’s business and policy spheres. Participants delve into challenges facing the city and actively engage in the process of creating solutions. The program takes place every year between September and May and consists of 12 sessions, about two per month. Alumni include Santa Fe City Manager Erik Litzenberg, Police Chief Andrew Padilla, and multiple City Council members and business leaders. We spoke with Program Director Valerie Alarid about LSF, its participants, and its value to the city and graduates. Applications are open through August and available here. There will be an informative kickoff celebration Monday, August 26, 5:30-7:00PM at Rio Chama Restaurant. RSVP required – register at info@leadershipsantafe.org.

Could you give us a bird’s eye description of the program?

LSF has a civics and a leadership skills development portion. We focus on six topics: youth and education, economic development, government, energy and sustainability, health and public safety, and non-profits. We go into the whole community of Santa Fe, holding sessions at multiple venues. It’s a great way to get to know different businesses and connect with people in various sectors.

What are the most important takeaways for participants?

First, they learn so much about the community and fiber of Santa Fe. Both locals and newcomers tell us they gained insights into areas and issues they’d never considered before. Second, people learn about themselves. They cultivate new skills and discover strengths they often hadn’t realized they had. The program also creates a lifetime of strong professional and personal relationships. Participants leave knowing they can always reach out to this network.

What are the benefits to Santa Fe?

LSF aims to create leaders in many forms. We support rising business leaders that might go into upper management roles as well as people who are interested in public office. Participants move on with a practicable understanding of diverse facets of the city. This allows them to contribute and make a positive impact whatever area they choose to pursue.

What’s an average cohort like, and who are your participants?

Cohorts are usually around 30 people. We keep them small so that our trainers can give everyone the attention they deserve. Groups are diverse and balanced. There is an application process and a review committee accepts the top candidates. A lot of individuals are sent over by their business’ management team for training. We also have independent individuals who want to go into public service, learn more about Santa Fe’s vast non-profit scene, or start or grow their own business.

What are you most excited about for this year’s program?

I’m especially jazzed that the economic development session will feature Daniel Werwath, who focuses on affordable housing and community development in Santa Fe. There’s a coalition working on housing solutions for the city, and I’m hoping some of this year’s cohort will bite into that work. It’s an important issue for attracting and retaining talent for Santa Fe.

The program is $1,045 for the whole seven months. Sponsors underwrite about 80% of the budget. LSF thanks early committed 2019/2020 program sponsors Enterprise Bank & Trust, New Mexico Gas Company, Delta Dental, Journal North, Century Bank, State Employees Credit Union, and CHRISTUS St. Vincent.

 

What’s It Worth? 9 Key Factors for Business Valuations

Do You Need a Business Valuation?

Whether you’re buying or selling a business, a business valuation is a necessary step in the process. You might be more familiar with the term “business appraisal.” These two interchangeable terms describe a complicated process used to determine what a business is worth.

There is no “cookie cutter” way to do this. There are different types of business valuations for different circumstances. There are some circumstances where a formal valuation is needed. In other instances, a less formal approach can be taken. We will help you navigate the various types of business valuations and determine which type of appraisal you need for your specific circumstances.

What Is My Small Business Worth?

Every business owner (and potential business owner!) wants a simple clean answer. Unfortunately, too many business brokers, CPAs, and fishing buddies are more than happy to give them a simple yet incorrect one.  The process of pricing a small business is like preparing a complex meal. You put in a lot of key ingredients to get to the end result.

9 Key Ingredients for Pricing a Small Business Correctly

  • Sales revenue – Is the business growing? Shrinking? Is it volatile year-to-year?
  • Profits – After adjusting for the owner’s earnings, what profit is the business actually making?
  • Customer Concentration – Is the largest customer a large part of the total business sales? Is it the same large customer every year? What is the risk of losing that customer?
  • Vendor concentration – Is the business dependent on a critical supplier? Is there a replacement supplier if something goes wrong?
  • Family members – Who is involved in the business?
  • Big industry or regulatory changes – What shifts are in the works?  Good or bad?
  • Financial records – Does the profit and loss statement accurately reflect the financial performance of the business? Can the tax returns and P&L be reconciled easily?
  • Accounting – Is the accounting done on a cash basis? Accrual? Are tax returns and financial statements prepared with consistent accounting principles?
  • Current interest rate – What is the present interest environment? Generally speaking, the higher the interest rates the lower the business value to a buyer due to the higher cost of borrowing to pay for the business.

And the list of issues goes on! The best advice: ignore any “Rule of Thumb” advice.  Contact us to set up a frank, confidential discussion. We can guide you through the process of determining a price for your business in today’s market that will help you meet your goals.