Day 7

Improve your bargaining power!

It’s important not to be too reliant on a small numbers of suppliers or customers. Having good, strong relationships with several suppliers for everything you buy means you don’t rely too heavily on any one of them – and having choice will help you shop around on price, potentially improving your margins.

Being dependent on a small number of large customers is dangerous too – and something that will worry buyers, partly because your turnover could take a nosedive if a few of the big customers go elsewhere and partly because, almost certainly, the customers themselves will know how reliant you are on them and, as a result, might well be exercising a fair bit of muscle when it comes to negotiating prices with you. What I’m saying here is that your overall margin might well be affected by if you have to offer really competitive prices to a few, big customers.

If any one customer accounts for more than 20% of turnover, that’s seen as a negative by buyers. If possible, try and make sure that your largest customer accounts for no more than around 5% of your total sales, as that’s seen very much as a positive – again, impacting on the multiple. The message here is that you should always look to diversify your customer base.