✈ October 4, 2017, Avicor Aviation Inc.
It's great to have a business with good customers.
You know, those customers that you can always depend on to come back time after time. If you sell a product, they call you every time they need it. If you run an FBO they always stop at your facility when they are in the area. If you provide maintenance, they regularly turn to you for their servicing needs. If you are a manufacturer, you know that they will order from you and turn to you when they need something produced.
But did you know that when it comes to how your customer base affects value you can have too much of a good thing?
While a "big" client that you can depend on for the largest share of your income can enable you to sleep easy when things are moving well, in valuing a business, that "big" client has the potential to be a liability and to represent risk. Putting "all your eggs in one basket" has never been viewed as good business sense and it applies directly to the value of your business. The greater the dependency on a single, or a small group of clients, the greater the customer risk.
The past decade or so has made it clear that companies of all sizes can experience difficulties, and their difficulties can pass directly through to their suppliers. If you find that your company is depending on one source for a significant percentage of its income, it may be time to consider how you can expand your market and diversify your customer base.
Yes, there are some companies that will always depend on a few key clients for the majority of their income and it's just the nature of the industry. For example, this can be the case with subcontractors that produce components for aircraft manufacturers.
For most aviation businesses, however, it's more important to ensure that there is more diversity in the customer base. If it looks like your business may be concentrated on serving a small number of key clients, it may be time to focus on building relationships with more customers.
Take a look at your customer base. Look closer at that "second tier;" those customers that could use you more, but right now, don't. Are there calls that could be made? Are there incentives that could be used? What would it take to bring some of these "second tier" customers into your top group of customers and spread the customer risk among a greater field?
How your customer base affects the value of your aviation business is directly tied to the amount of risk your business is exposed to. The key to maximizing the value and minimizing risk is a healthy balance where the loss of a key client would not adversely affect your business and you can count on consistency.
Have more valuation tips emailed directly to your inbox each week! Just sign up below to receive an email each Wednesday with more tips about maximizing the value of your aviation business.
To contact us directly, either email us at bizappraisal@avicoraviation.com or call us at at 1-503-973-5711 or 1-800-563-2359.
