What should I ask about a pallet company’s reliance on a few large customers?
Ask for sales by customer and see how much of the volume sits with the top few. Then ask how each large account buys, whether it is under contract or order by order, and what the seller thinks would happen to the business if one of them left tomorrow.
Start with the sales records. Ask for volume by customer, split between new pallets, repaired pallets and recovered ones, since a big account may lean on only one of those lines. Then look at how each large customer buys. Is it a standing order, a quote each time, or a verbal arrangement with one person at the plant?
Ask who holds each relationship. If the owner alone takes the calls and sets the prices, a buyer is inheriting a handshake. Ask to speak with the biggest accounts, with the seller’s consent and at the right stage of the deal, and ask what they would need to keep buying.
Next, test the downside. Ask what the shop would do with its crew, trucks and floor space if the largest account shrank or moved to a rival. Ask how the seller has handled a lost customer before, and whether the pricing to large buyers leaves any margin for the shop to absorb a slow patch. Finally, ask how the seller prices the large accounts and whether any discount was given to keep them. Compare their payment speed with smaller customers, and ask whether any of them has talked about bringing pallet production in-house or switching to plastic or other formats.
Key takeaways
- Get sales by customer and read how concentrated the top accounts are.
- Find out who holds each relationship and how each account actually buys.
- Ask how the shop would cope if its biggest account left.
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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?
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