Claims to verify · Before you buy
How to verify customer concentration before buying a business
Published · Reviewed by The Diligence Standard Team · Updated
Concentration is more than a revenue percentage. Test customer-level sales, margin, payment behavior, contracts, renewal dates and dependence on the seller. A large customer may be durable or may leave immediately after transition.
A realistic transaction story
A packaging distributor reported that its largest customer represented 18% of sales. Customer-level margin analysis showed the account produced 31% of gross profit because it bought the highest-margin products. The relationship belonged primarily to the retiring owner.
What the evidence changed
Revenue concentration understated the economic importance of the account.
What to check
- Write down the exact claim and who supplied it.
- Ask what was independently tested, by whom and under what scope.
- Reconcile customer sales to accounting records and measure concentration by revenue, gross profit, contract term and relationship owner.
- Translate any unresolved gap into cash, price, terms, timing or a decision not to proceed.