Customer concentration measures how dependent a business is on a small number of customers, for example, one client generating 40% of revenue. High concentration is a major risk: losing a single account can gut cash flow, which is why it lowers valuation and can shrink or sink SBA financing.
Reading concentration
| Business | Top customer | Risk |
|---|---|---|
| A | 45% of revenue | High |
| B | 6% of revenue | Low |
Business B's diversified base is worth more per dollar of SDE than A's, and far easier to finance and to hold through a transition.
Why it matters when buying a business
Concentration turns much of a business's goodwill fragile, if the value rests on one relationship, so does your loan repayment. Lenders scrutinize it, and it's a classic reason to negotiate price, add an earnout, or walk. Always request a customer revenue breakdown during diligence, and confirm it in the QoE.
