How do I judge whether an irrigation company is too dependent on a few landscaper clients?
List revenue by client and see how much comes from the top few landscapers. If losing one would hurt badly, the dependence is high. Then ask how those relationships began, whether there is a contract, and whether the landscaper could do the work in-house or switch to a competitor.
Request sales by customer for several years. Rank them and look at the share held by the biggest names. Notice whether that share is rising, since a growing reliance on one source means rising risk. Do this before you meet any of the landscapers.
Next, understand the relationship. Does the landscaper subcontract all of its irrigation work to this company, or only the overflow? Is there a written agreement, or does it run on handshake loyalty to the current owner? A relationship that rests on friendship may not survive a sale. Ask for the original quote for each large customer, so you can see which jobs were priced from experience and which were guesses.
Consider the landscaper’s own position. Are they growing, struggling or thinking about adding irrigation themselves? Ask what the irrigation company would do if one stopped calling. Also check how the company fares with homeowners and commercial customers directly. Direct customers soften the loss of any single landscaper. Finally, speak with the main landscapers after signing a confidentiality agreement, and ask your accountant to confirm the sales figures match the books. Ask also how long the best landscapers have been working with the company, and what they say about its response times.
Key takeaways
- Rank customers by revenue and watch the share of the largest.
- Check whether landscaper relationships are written or just personal.
- Look for direct customers who could soften the loss of one account.
- Ask whether landscapers could bring irrigation work in-house.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
- 03Business Development Bank of CanadaGovernmentAfter buying a business, what is the next step?
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