If we have a single customer that accounts for fifteen percent of our revenue, how do we use a customized seller note structure to absorb this risk instead of accepting a lower overall multiple on the entire business?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the fastest ways to kill a valuation multiple. A buyer will look at a fifteen percent concentration and fear that if that single client leaves, the business will collapse. Rather than letting them discount your entire multiple, you can use a creative seller note structure to ring-fence this specific risk. Propose a seller note where the repayment terms are directly tied to the retention of that specific customer. For example, if the customer remains active and maintains their historical spending levels, the seller note is paid in full with standard interest. If the customer leaves or reduces their spend, the principal balance of the note is reduced proportionally. This structure allows you to defend your target multiple on the other eighty-five percent of the business. You are essentially taking back the risk of that specific customer, which you should be comfortable doing if you have built a strong, institutionalized relationship with them. Use your weekly Level 10 Meeting™ to monitor this customer's health through your operational scorecard. Ensure your leadership team has clear Rocks focused on deepening our integration with this client. By showing the buyer how your operating system manages this account, and backing it up with a contingent seller note, you remove their primary objection and protect your walk-away cash.