Another possibility may include earnout payments based on company performance for a specified term. For example, a certain portion of the purchase price may be held in escrow for a defined period of time in the event one or more customers are lost post-closing.
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Is there an exclusivity relationship with the customer?.Is there a customer contract in place? Is it transferable?.What would be the impact from the loss of a major customer?.Many small businesses have customer concentration issues, which must be addressed in order to sell the business. Just as a business enjoys value drivers, it may also suffer from value detractors-one of which is customer concentration. Pay attention to your accounts receivable and aging report because this will indicate if your customers are facing cash flow issues.Ĭustomer Concentration: "Too Many Eggs in One Basket" Scenario.What geographical area do you serve? Are your customers mostly local, regional or international?.It has potential to generate future earnings for a new owner and may add significant value. Customer databases contain valuable information that a potential buyer can use as a source of competitive advantage.A quick insight into the diversity of your customer base is to run a 'gross revenue by customer report by year.' It will show you the percentage of total revenue each customer generates year-by-year.Here are a few things to understand about your customer base and of interest to potential buyers:
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Customer diversity measures how insulated from any large-scale domino effect your business is to any reduction in demand or economic problems your customers may face. An enterprise serving a multiplicity of customer types, or customers in unrelated industries, that are not affected by the same economic conditions further mitigates risk. Potential buyers look for a broad customer base in which no single client accounts for more than 10 percent of total sales.