“Venture not all in one ship…”
This old saying is perhaps better known to us all as “don’t put all of your eggs in one basket” but the message for business is the same – over reliance on one big contract or one big customer can be great ….. until things suddenly change.
We have dealt with a number of businesses over the last few months and whilst they are diverse and unconnected they share a common problem. All have had one key customer with a longstanding major contract to supply goods and services. When the contract is lost or withdrawn, the business is not in a position to replace the lost turnover quickly. The situation is even more difficult to deal with when the contract is lost with very little notice.
In the meantime, the business has been geared up, usually for many years, to deal with the contract. It may have dedicated machinery and trained staff and specific suppliers it has dealt with, all of which can be difficult to re-purpose or change when the need arises. The business is faced with the difficult prospects of cutting overheads and searching for new contracts and sales to replace the lost business whilst continuing to carry the ongoing overheads of the business.
What are the causes of this sudden loss of business?
In the cases we have dealt with, we have seen a range of causes resulting in a loss of the contract. Interestingly, none of them relate to the reliability, quality or supply of the goods and services in question but rather changes of circumstance with the customer. We have seen an extremely long established UK customer of one of our clients being bought out by a venture capitalist company that changed its supplier to one it was already dealing with across the rest of its group.
We have seen customers suddenly imposing new pricing demands on its suppliers such that the contract is no longer profitable. We have also seen a company that has enjoyed contracts with major supermarkets to stock and sell its goods suddenly have their products discontinued as consumer choices change. The reasons can be quite varied and come on fast and with little warning.
A further example was a PR company with one major account which had been in place for many years. Almost overnight, the client’s spend with the PR company went from £40,000 a month to £4,000 a month as the client sought to save costs and brought in-house services it had previously outsourced.
How Can a Business Protect Itself?
For those businesses already in this position, it is a very difficult change to make. Whilst thinking about reducing the reliance on one key customer, at least try to keep close to that customer and ensure there are no imminent changes which could impact on the level or profitability that contract currently provides.
For any business that has already lost a significant contract or is on notice that a contract is coming to an end imminently, this may be a threat to the viability and solvency of that business. Making changes to downsize a workforce can be expensive and time consuming. We would urge the owners to seek professional advice as soon as possible. In addition, have a clear plan and document how you intend for the business to recover from the impact of a lost contract so as to avoid any criticism if things do not work out.
We can Help
If you have clients who are exposed to the risks of over reliance on a key customer or perhaps are dealing with the impact of a lost contract, we can help. The earlier we can discuss the problems with the client, the greater the range of possible solutions there may be and every effort will be made to save a business where possible.
We have a team of qualified and experienced advisors who can help your clients – please contact us for swift and confidential advice on 0121 200 2962.
