Dependency is Risky

When starting their businesses Entrepreneurs might depend on one or a few customers for most of their revenues. This revenue concentration scenario is understandable for the very early start-up stage of a company.

As revenues grow, the increase hopefully comes from having more customers rather than only from more business with the same clients. Diversification in the source of revenues is a critical factor in the long-term success of the company.

The risk of concentration of revenues from only a few clients or one or two big customers could be huge. If a significant portion of the revenues are derived from, say one customer, it could be devastating for the company if such business was lost, reduced dramatically, or even if there were payment problems with such receivables.

Entrepreneurs, at the appropriate stage in their company’s growth, would be well advised to diversify the sources of revenues such that dependence on a few clients does not end up hurting their business. Businesses sustained by only a few customers might be following the wrong path.

Managing revenue concentration risk is a critical component of Entrepreneurs Doing the Right Things!

Ravi Patel

http://www.patelCFOservices.com

 

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