How do you finance a high customer concentration business?

searcher profile

December 04, 2020

by a searcher from Babson College - F.W. Olin Graduate School in Boston, MA, USA

I would like to make an offer for a Industrial supply business but a couple of long term customers account for ~50% of revenues. How would you structure the deal to make it "financeable"? The business generates about $750K in earnings.

2
5
162
Replies
5
commentor profile
Reply by a lender
from University of Missouri in St. Louis, MO, USA
Second Ron’s comment. Underwrite as of the biggest customer went away. Also, pay attention to gross profit over sales. The customer might be 50% of revenues but could be a lesser part of the GP unless they have flat pricing across the board.
commentor profile
Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA
I'm selling a company right now that has a large customer. The lender underwrote the business as if that customer went away, so only ended up with a 50% LTV. We have to fill the gap with a combination of down payment and seller finance.
commentor profile
+3 more replies.
Join the discussion