Lack of Diversification Makes for Risky Business1 min read
Customers. Being dependent on only a few customers for the majority of your sales could cause trouble. Imagine what will happen if your largest customer requests a major price reduction or starts buying from a competitor. Having a lot of customers does not mean you are adequately diversified either. If all of your customers are in the same industry this is called a concentration risk and you can reduce this risk by targeting a variety of industries when pursuing new customers.
Vendors. Think about how many suppliers you rely on for your business to run smoothly. Have an alternative supplier on the back burner in the event one of your primary vendors goes out of business, can’t provide enough of a product to meet your needs or has an unexpected price increase.
Employees. Don’t rely on the skills and reliability of only one other person in the business. If that individual would have an emergency or have to leave unexpectedly the business could suffer. It is important to share information and delegate responsibilities in order to keep your business running as usual in the event another employee is not available.
Diversification can be difficult for new businesses. Aim for long-term success and reduce your vulnerability to these manageable risks by having plans in place.
By Greg Simons
In 1995, Greg founded Simons Bitzer & Associates and has focused his time on providing services to small and medium-sized businesses in central Indiana. He has served as Chief Financial Officer for several organizations and specializes in working with tax agencies to resolve difficult tax matters.
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