Over-Dependence on a Single Customer or Supplier

It can happen where, over time, the business derives most of its revenue or profit from a single customer.  This can happen for many reasons, including, but not limited to having a great relationship with the customer or doing business for a customer who is a much larger business than yours.  The risk is that if anything should happen to impair your ability to sell to this customer, your own business profitability is at risk.  It is well advised to review your customer list periodically to determine whether a significant portion of your revenue is earned from one customer.  It is also prudent to have contingency plans in place for how your business should respond in the event such a significant customer is lost.

A business can also become over dependent on a supplier.  For example a key part of your product is available from only one supplier.  If that supplier stops producing it, you must redesign your product to accommodate parts from other sources.  Consequently your business is unable to continue producing and selling its product until this is resolved.  Cash flow and profitability could be severely impaired.  It is recommended to evaluate your suppliers periodically and determine whether alternate sources of necessary supplies or parts are available. 

A Chartered Accountant can assist you. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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