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

 

Communicating Bad News

All Entrepreneurs at one time or another are faced with situations where they might have to share some bad news with clients. What do you do?

If you are faced with a situation where you cannot deliver a product/service to a client per the original scope, there is a quality problem, a delay in performance, cost overruns, and so on; if or when do you communicate this news to the client?

  1. Inform them right away that you are facing a problem situation and the company is actively working on a plan for correction,
  2. Communicate the problem situation and the corrective action plan after it has been developed,
  3. Do not communicate this to the client until they find out. At that time inform them that you were aware of the problem and were working on the solution, or
  4. Never inform the client hoping it will go away. If it surfaces, blame someone else in your company.

The Entrepreneur’s consistent philosophy in addressing the above situation with either one of these or other scenarios determines the long-term relationship with clients and success of the company.

What do you do when faced with such a situation? Do the Right Things!

Ravi Patel

http://www.patelCFOservices.com