Is Your Business Dependent on Too Few?
Are you like many small business owners? Are you too reliant on a single customer or supplier for much of your business? If you're in that position, you're taking a big risk. Just as the old adage says, don't put all of your eggs in one basket. You should have a well-diversified portfolio of customers and suppliers.
Sounds great, but in the real world you may not have a choice, at least short-term. Let's look at some steps you can take to understand your risk and, over time, to change it.
You Can't Manage What You Don't Measure. Work with your Dugan & Lopatka accountant to analyze your sales by customer or by customer segments. Focus on the top five or ten customers or largest segments to see whether you have an over-reliance problem. Conduct a similar analysis of your principal suppliers. Determine how dependent you are on the top customers and suppliers.
Understand the Risks. Next, make a list of anything that might jeopardize your business with your largest customers and suppliers. Jot down everything and anything that comes to mind. This might include a natural disaster that interrupts your customer's business or that prevents you from shipping or receiving goods. It could be a change in the marketplace such as a new competitor from overseas or a new technology that cuts demand for your product. Don't forget your own operations. Labor problems, a drop in quality, shipping delays, or poor inventory control. The list may be overwelming and may seem remote, but until you understand the risks, you can't develop solutions.
Minimize Your Risks. What long-term steps can you take to reduce each risk? Devise contingency plans to address possible disasters or find alternative suppliers. Consider how you would respond to negative changes in the marketplace. Set measurable goals for change and assign responsibility. Changing the situation won't be simple, and it may take a long time. But protecting your business is worth it.
For assistance with this issue or with any of your business concerns, give Dugan & Lopatka, CPAs a call at (630) 665-4440.