How Your Employees and Customers Effect Your Business Value

We refer to this as “The Switzerland Structure”. You probably know that Switzerland is neutral and independent, but did you know that you should operate your business in the same way as Switzerland?  Like Switzerland, the business you operate should not be dependent on any outside forces. In particular, your business should not be dependent on any one customer, any one employee or any one supplier or vendor.

Think about it.

If you rely too heavily on one employee to handle your most important deals (contracts, customers, sales, negotiations), what happens when that employee decides to leave or passes?  How will you fill that employee’s shoes to avoid loss of revenue, customers, and opportunity?

Do you have customers or vendors that make up more than 40% of your revenue? Do you have a plan in place to fill the gap if a your best customer or vendor goes out of business or gives work to a competitor? Or will this leave you in a scrabble?  We know that If that one customer providing 40% of your revenue stops purchasing from your company, revenue will plunge.

If that one supplier or vendor stops production or is unable to deliver orders in a timely fashion, your company may be left without a source for a key component to a product or service that it provides. Again, loss of profits, opportunity, and likely damage your reputation.

Business continuity planning (also referred to as contingency) is extremely important. It provides ownership and management with options to be proactive rather than reactive in times of major change.

From a valuation perspective, being overly dependent is risky.  A potential purchaser will immediately understand the threat to the business and discount the purchase price.  You can reduce the risk by diversifying your customer base, your key employees, and your list of suppliers and vendors.  We suggest that no one customer, employee or supplier should be responsible for more than 15% of your company’s revenues.

This short article is for informational purposes only.  It does not create an attorney-client relationship and is not intended to be regarded as legal advice.