Developing a Solid Customer Base

An important Value Driver is development of a solid customer base.

When you put your self in the buyer's shoes, you will find that you will pass by companies with great management teams and excellent systems but whose cash flow is dependent on one or two customers.  Why would they want to spend millions of dollars on a business only to have those customers go elsewhere, after you have acquired the company?  At the very most, a prudent buyer will structure a buyout to protect against the loss of a key customer, probably by having much of the price of the company contingent or requiring the seller to carry a note for the bulk of the purchase price with the right to offset the note if a major account leaves. 

The goal of a business owner is to have no single account to account for more than 10% of all sales.  A large customer base helps to insulate a company from the loss of any single customer. 

Achieving this objective can be problematic when you have a few clients that are willing to pay for everything you deliver.  If this is where you have found yourself begin now to reinvest your profits into additional capacity that will make developing a broader customer base possible, and /or acquire customer diversification by buying another small company.

Joan

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net