High Customer Concentration

November 06, 2023
by a searcher from Fairfield University - Charles F. Dolan School of Business in New Haven, CT, USA
Hello,
I'm reviewing the CIM for a company that kits for manufacturers.
It has been in business for more than a decade, but one of its customers represents 80 percent of its revenue. The other customer represents 20 percent of its revenue.
I am concerned that either this company never marketed/tried to reach new clients or that getting in with new clients is extremely difficult.
I think it's a relatively low barrier to entry for competitors also.
I like the idea of the business and it's only about 90 minutes from my house. but I don't want to make the wrong choice.
Any thoughts?
Thank you, Dee
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
1) How many different items do they produce for the subject client? If it is just a couple the exposure is much greater. If they produce many different items it could be significantly harder for them to move the business.
2) How financial strong is that one customer? Namely, how long have them been in business and what can you find out about who they are and who their customers are?
3) What relationship does the seller have with this customer? Is this a customer only doing business with the seller because of a personal relationship?
4) How easily can you bring other clients to the customer to diversify the client base?
I hope this helps. We have done financing for businesses with high concentration before, but usually most of the above metrics need to line up in favor of the buyer. If not it can be really hard to get done. Truthfully, if these items do not measure up, the deal likely will largely need to be funded by the seller. If you have additional questions you can reach me at redacted Good luck!
from Harvard University in Rye Beach, Rye, NH, USA