Our largest customer accounts for twenty-five percent of our total revenue. While they have been with us for five years, buyers are using this concentration to try to discount our base multiple. How do we structure the deal to protect our valuation without letting the buyer lock up all our cash in an escrow account?

Question

Tyler Smith · Accepted Answer

Customer concentration is a common valuation killer, but you do not have to accept a massive discount or a predatory escrow structure. To protect your valuation, you must negotiate a deal structure that shares the risk equitably while proving that the relationship is institutionalized.

First, propose a structured indemnification cap specifically for this account rather than a general purchase price reduction. Under this structure, you agree to place a capped portion of the purchase price into a specific indemnity escrow that is released gradually over twelve to eighteen months. The release should be tied directly to the account maintaining a baseline level of spend. This keeps your baseline valuation intact while giving the buyer downside protection.

Second, utilize your EOS® Accountability Chart to prove that the customer relationship is managed by a team, not by you. Show the buyer that your key account managers, delivery leads, and operations team handle ninety-five percent of the communication and service delivery. When you document these touchpoints, you demonstrate that the client is loyal to your business systems and not to you personally.

Third, insist on including language in the purchase agreement that voids any customer-related clawbacks if the buyer makes material changes to service delivery post-close. If the client leaves because the buyer cuts staff or degrades service, your proceeds must remain fully protected. This balanced structure preserves your target multiple while keeping the buyer accountable for operational continuity.