Owners are protective of their customer list, and they should be. I ran sales for a distribution business before I became a broker, and I know how long it takes to earn an account and how quickly a competitor would like to have it. But when a serious buyer gets to diligence, the customers are what they are really buying. The equipment and the name matter, but the customers are where next year's earnings come from, so expect them to be examined from every side.
1. Sales by customer, three years running
The first request is usually a report of sales by customer for each of the last three years, plus the current year to date. A buyer reads it for movement, not just size. Which accounts are growing, which are shrinking, and which were on the list two years ago and are gone now. A customer who cut orders in half last year will be found, and it is far better if you are the one who explains why. If your bookkeeping system can't produce this report cleanly, fix that before you go to market.
2. How much rides on the top few accounts
Next, the buyer adds up your largest customers. Once a single account is somewhere around 15 to 20 percent of sales, expect harder questions, and the bank financing the deal will ask them too. A concentrated customer base doesn't kill a sale, but it usually changes the structure. A buyer may want part of the price tied to that customer staying after closing, or may simply offer less for the risk. The time to broaden the base is years before a sale, not during one.
3. What the relationship actually rests on
A buyer wants to know why each major customer buys from you. Is there a written agreement, standing purchase orders, or a handshake that has held for fifteen years? If there are contracts, they will be read for term, pricing, and whether they can be transferred to a new owner or end when ownership changes. The harder question is personal: does the customer buy from the business or from you? If every important account calls your cell phone, the buyer has to believe those relationships will move over. A sales manager or account rep who already handles the day-to-day contact is worth a lot here.
4. How your customers pay
Customers who buy but pay slowly are a different asset from customers who pay on time. Expect the buyer to review your receivables aging, any accounts with special terms you've extended over the years, and any disputes or write-offs. An account that has run 90 days behind for a decade may be normal to you, but to a buyer it is cash tied up and a question about the relationship. Clean up what you can and be ready to explain the rest.
5. The customer calls
Late in the process, many buyers want to speak with a few key customers themselves. This is the step owners worry about most, and it can be managed. The calls come near the end, after financing is lined up and the main terms are settled, not in the first week. You agree on which customers, what will be said, and usually you make the introduction yourself. Handled that way, the call often helps: the customer hears that the business is in good hands, and the buyer hears it directly.
The takeaway
A buyer is paying for customers who will keep buying after you leave. Before you go to market, produce three years of sales by customer, know your concentration and be ready to explain it, gather whatever agreements exist, clean up your receivables, and start moving key relationships from you to someone on your team. Every one of those answers is better coming from you than discovered by a buyer.
