4 steps to protect yourself against customer concentration

Happy Tuesday!

Last week I wrote about customer concentration (what it is, why it matters, and why I treat high concentration as a serious red flag when evaluating any deal).

Today, I’m sharing exactly how to identify it during due diligence, and how to structure protection around it before you close.

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Their first deal came directly from networking inside the group, and now they're acquiring their second and third companies.

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Step 1: Request a full client revenue breakdown

Most sellers won’t surface this information on their own, so you have to ask for it directly.

What you need is a list of every active client, the revenue each one generates, and how long they’ve been a customer.

In some cases, particularly with smaller owner-operated businesses, the seller may not even have this broken out clearly.

That’s fine, but they need to get it to you before you go any further.

This is non-negotiable information.

If a seller pushes back on providing it, that’s its own signal worth paying attention to.

Step 2: Look beyond the percentages

Once you have the list, the obvious check is whether any single client represents more than 10% of revenue.

The next question is whether that relationship is transferable.

A long-term client who’s done business with the company for fifteen years is very different from one who came in because of a personal friendship with the seller.

If the relationship is built on the seller’s individual network or personality, there’s a real chance it doesn’t survive the transition, regardless of how loyal that client has been historically.

(Inside Acquisition Ace, members learn how to evaluate customer concentration and structure deals that protect against it. If you’re curious about joining our community and learning how to evaluate deals for yourself, book a call with our team here to see if it's a good fit.)

Client tenure matters too. A business where most customers have been around for less than a year raises questions about retention, even if no single client dominates revenue.

Step 3: Review the actual contracts

After analyzing the client list, pull the underlying contracts and look at renewal dates, pricing terms, and whether there are any clauses that transfer automatically to a new owner or require renegotiation.

This is where you’ll find out if a major contract is expiring in three months, or if pricing is locked in below market in a way that’s going to compress your margins from day one.

Better to know now than after closing.

Step 4: Build protection into the deal structure

Work with your attorney to include representations and warranties in the purchase agreement confirming that the client list and revenue figures provided are accurate.

You can also structure performance-based payments tied to client retention, meaning the seller gets a portion of their proceeds only if key customers remain through the transition period.

This aligns their incentives with yours and gives them a financial reason to make the handoff as smooth as possible.

Spell out clearly what the seller’s post-close responsibilities look like:

• Which clients they’ll personally introduce you to

• How long they’ll stay involved

• And what that involvement actually requires from them week to week

When all of this is in writing and agreed upon before closing, you’ve substantially reduced the risk that comes from customer concentration.

If you’d like help navigating due diligence like this with people who’ve already been through it, the Acquisition Ace community is perfect for you.

👉 Book a call with my team here to see if it's a good fit.