Does relying on a single supplier hurt my business’s price?

A business that buys a key input from one supplier has a dependency that a buyer can see in its purchasing records. Whether it reduces your price is for the buyer to decide, but it is a recognised issue and you can prepare for it. Preparing means improving the position, or being ready to explain it.

What BDC says

BDC’s selling guide says unaddressed issues complicate a sale because the buyer must resolve them without your knowledge of the business, and that this could affect the price or terms. It advises addressing any supplier or customer concentration issues or, if that is not possible, thinking about ways a buyer could mitigate them. BDC’s negotiation guide lists customer concentration and key employee reliance among the risks buyers assess.

Will the relationship go with the business

A supply relationship may rest on a signed contract or on habit. BDC’s purchase-agreement guide gives, as an example of a closing condition, leases or contracts that the vendor needs a third party’s consent to transfer. Read your supply agreement for clauses on assignment, change of control, exclusivity and termination, and ask your lawyer how an undocumented arrangement would be handled.

Ways to improve the position

None of these removes the dependency overnight, but each gives a buyer something concrete to evaluate.

• Qualify a second supplier, even for a small share of volume.
• Put prices and terms in writing for a fixed period.
• Record how the supplier has performed, including late deliveries, shortages and price changes.
• Know what you could substitute if supply stopped, and how long that would take.

Telling the supplier

BDC’s selling guide warns that, depending on a listing site’s confidentiality procedures, word could get out to employees, customers or suppliers that you are selling. It also notes that a supplier can be a potential buyer. Decide when and how the supplier is told before you list. For the buyer’s side of the same question, see how to check supplier relationships.