A risk point for small business is having concentration in their revenue sources and the resulting receivables associated with them. This is one factor that banks look closely at when determining whether they will lend to companies with concentrations in their client base. If they do, they are likely to severely limit the advance ratio against receivables from the concentrated client(s). I reviewed financials for a company the other day that received 80% of their revenue from a single client. Can you imagine the impact to the small business if this client chose another vendor or experienced financial difficulties themselves? It also places the client in a position to negotiate tighter margins for you and better prices for them. In other words, they are dealing from a position of strength, because they know you are at their mercy. Think of it like this, if you have an investment portfolio, would you want 80% of your money invested in a single stock? Diversification is an important investment concept, but it also applies to small business, as well.
One of the services we provide is to analyze your revenue sources and to help develop strategies to reduce your dependence on just one or two clients. Please contact us if you would like our assistance.
Here is an article that speaks to some of this: https://www.inc.com/ed-powers/five-ways-to-cut-customer-risk.html