Posted on 13.01.2014, by Rob Warlow
When reviewing your finance request the bank is looking to identify the various risks which could cause your business to fail or at least struggle.
There are a number of risks which banks are on the hunt for but one such risk is client concentration; is your business overly dependent on one or two clients?
A disproportionate reliance in terms of turnover on one client can prove fatal if they fail to pay what’s due or, even worse, close down altogether.
If a large portion of your sales turnover does depend on one or two clients then the bank will see this as a key risk (as should you). If you are in this position the bank will be looking for an answer to this question,
“If this key client fails, what impact will this have on repayment of our loan?”
The importance of investigating this risk, and understanding the impact it can have on a business, is highlighted in a recent company failure.
A company operated a three-star hotel just outside Cardiff Wales International Airport in South Wales.
The hotel’s primary source of income came from the company operating the airport car parking facility. The company offered the airport users a package deal comprising of car parking and hotel accommodation. An ideal win-win for both the hotel and the car parking provider
Unfortunately the car parking company closed the facility in January 2013 and very quickly the hotel started to suffer due to this dramatic loss in business. The reason for this was that the arrangement constituted a large portion of the hotel’s turnover.
The end result was the company running the hotel was placed into Administration in November 2013 with lenders and other creditors facing a significant loss.
A salutary lesson as to why you should never build a business on a thin client base; the risks are too high and if you are looking for finance the bank will be less willing to support you.
Client diversification is the key.
Rob delivered a series of 3 workshops aimed at understanding how finance houses look at finance propositions with the aim for us as a team to deliver more of a bespoke offering to our customer base. The training was delivered to a mixture of staff who work with new businesses start-ups and existing established businesses across Mid & South West Wales. Rob delivered the training with an abundance of passion and has really helped my team look at financial propositions in a different light, many thanks again Rob and I look forward to work with you in the near future.
Rob kindly agreed to attend the recent Pontypridd RFC sponsors networking evening and delivered what can only be described as an excellent talk on 5 Tactics to Boost Your Business and Your Profits. He kept the audience engaged throughout and the feedback from everyone was excellent. Rob is very knowledgeable on business and finance and on top of that is a genuine nice guy. We hope to have him back at a future event and I have no hesitation in recommending Rob’s services.
Hi Rob, it was so interesting and entertaining listening to you at the Kevin Green Wealth Coach Workshop in Reading this weekend! I didnt realise you can find Finance proposals such fun!. Brilliant tips! Thanks.
Further to your recent presentation at LEAD Wales just wanted to say it was very refreshing to see somebody talk passionately and positively about finance, very insightful!
I wanted to thank you for such an insightful, energetic, and entertaining talk at the Kevin Green Wealth event on securing funding and creating a successful plan. It was brilliantly executed and a pleasure to listen to and the ideas I’ve learned are definitely going to help me in going forward.