Advice on buying a professionals services firm with heavy client concentration?

October 03, 2025

by a searcher from University of Virginia in Chicago, IL, USA

I’m evaluating a boutique professional services firm where one Fortune 500 client accounts for ~70% of revenue. The client relationship has been in place for 25+ years, non-dependent on owners, and the company runs semi-absentee with managers handling day-to-day. For those who have looked at or owned businesses like this, how did you underwrite client concentration risk? Did you use structure (seller notes) or just pass? Would love to connect 1:1 if you’ve lived through this dynamic.

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Reply by a lender
from California State University, Sacramento in Seattle, WA, USA

I’m personally with ^redacted‌ and ^redacted‌ on this one. Unless you have specific industry experience and industry contacts, why would this be interesting? Caution on listening to all the hype out there on how easy running these small businesses are. Sometimes you can’t (shouldn’t) structure around some stuff.

Reply by a searcher
from University of Illinois at Urbana in Naperville, IL, USA

I think the first thing you have to do is to evaluate stickiness - not just based on how long they have been a client (although that's a good metric), but you need to evaluate switching costs and get clear on why they have not put the business up for competitive bids. You may be in a situation where the relationship is not owner dependent but you also have to ask yourself whether the relationship is champion dependent on the client side. If there's someone who's very happy with the service likes the people that handle their account and has been there for 25 years but they are retiring in 2 years then you may have a whole different ball game in front of you. You also need to assess whether the relationship is key person dependent on your side. If the person that is the relationship owner (even though they are an employee and not the business owner) leaves, is the account going to follow them? Why or why not? Depending on the type of professional service, part of the switching cost for the client may be very much about the competence and knowledge of the key people servicing it. That means that if your employee base shuffles then they are incurring that switching cost anyway and that would be the time they would consider leaving. I would also be asking yourself why there is so much customer concentration. If this model works so well for this singular client why isn't it working well enough to pull in other clients? Ultimately you want to resolve that customer concentration through growth. If there isn't a viable path to do that then eventually some factor will come into play with the one major client that could disrupt things. I would evaluate the client itself to understand whether the customer concentration risk with this client is a single point of failure or whether it's broader than that. If there are multiple champions within the organization with wholly separate budgets and separate relationship managers,then you're more protected than a single budget and a single champion. You could be in a situation where some of that key client goes away but you keep the majority of the revenue. That's better than a situation where all of it stays or leaves together. You should also fully understand whatever contract cycle exists. If they are going to leave for any reason or reduce their budget or, due to their leverage with you, come back and demand a rate reduction then you need to know what kind of control you have to manage the timing. You should evaluate how credible and viable it would be for this client to internalize the service. For example marketing agencies can often go through long-term cycles with clients that sometimes want to internalize to reduce costs and at other times want to externalize to improve quality or because they failed it managing the capability internally. Sorry this was a bit of stream of consciousness from the mobile phone but I hope these thoughts help. I'm happy to talk directly if you think it would be useful. For context I built and ran the p&l for technology professional services for more than 25 years.

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