When selling a business, buyers look for stability, profitability, and long-term viability. However, one major red flag that can derail a sale is excess concentration risk—when too much of your revenue, operations, or supply chain depends on a single source. If buyers perceive a lack of diversification, they may reduce their offer, require performance-based payouts, or walk away entirely.
To maximize value when selling your business, you must mitigate concentration risks in four key areas:
1. Customer Dependence: Reduce Revenue Concentration
It’s easy to celebrate strong, long-term relationships with major clients. However, when a small number of customers account for most of your revenue, buyers see risk. If those customers leave, the business may struggle to survive.
We once worked with a business where 85% of revenue came from a single client. When that client left during the sale process, the deal collapsed—along with the owner’s ability to sell at a fair price.
How to Fix It:
✔ Expand your customer base to reduce reliance on a few accounts.
✔ Enter new markets to diversify revenue streams.
✔ Consider strategic acquisitions to increase customer diversity.
2. Owner Dependency: Ensure Business Continuity
If your business relies heavily on your personal skills, relationships, or decision-making, buyers may hesitate to proceed. They’ll wonder: What happens when you leave? If clients only trust you, they may take their business elsewhere.
How to Fix It:
✔ Transition key client relationships to sales staff.
✔ Document processes to ensure smooth operations without you.
✔ Establish a management team that can sustain the business post-sale.
3. Employee Dependency: Retain Key Talent
Buyers evaluate whether a business can operate successfully without its owner—or key employees. If a company relies too much on a few critical team members, buyers will worry about retention after the sale.
How to Fix It:
✔ Distribute responsibilities among multiple employees.
✔ Offer incentives, such as bonuses or equity, to retain key staff.
✔ Require non-compete and employment agreements to ensure continuity.
4. Vendor Dependence: Diversify Your Supply Chain
Many businesses rely on a single supplier for raw materials, components, or services. While single sourcing offers convenience, it also poses risks. If that supplier raises prices, delays shipments, or goes out of business, your entire operation could be disrupted.
How to Fix It:
✔ Establish relationships with multiple vendors to ensure supply chain stability.
✔ Compare performance among suppliers to maintain competitive pricing.
✔ Have contingency plans for sourcing materials if a key vendor fails.
Why Addressing Concentration Risk Matters When Selling a Business
Excess concentration risk makes a business less attractive to buyers. If they perceive a lack of stability, they may:
❌ Walk away from the deal.
❌ Reduce their offer price.
❌ Require an earnout—where part of the purchase price depends on future business performance.
By proactively addressing these risks, you improve business transferability, increase buyer confidence, and maximize your sale price.
Ready to Sell Your Business? We Can Help
At Benjamin Ross Group, we help business owners identify and mitigate risks before going to market, ensuring a smoother sale process. If you’re thinking about selling a business, let’s start planning now to secure the best possible outcome.
Contact us today at 215-357-9694 or download our Selling a Business Checklist to get started!
