Future proofing your customer base
Here as part of our series on the best way to get the best price for your business we discuss how important it is to future proof your customer base. For even more detail, do check out our Learning Centre which goes through all the key stages of customer due-diligence – alongside all the other key questions an Investor will ask.
Investors are always interested in the history of your company’s performance – but they’re obsessed about the future. With your customer base, investors want to know that not only are you growing the size of your customers but also that these customers are both diversified and are being properly serviced. In order to improve an investor’s valuation of your business, you’ll want to make sure you are able to answer all of the questions below and take action if there are weaknesses.
Segment your Customers
The first thing investors want to know is how large is your customer base, where are they, and how fast are they growing. You should have your customer segments broken down by product, location, and industry (if applicable).
They will want to see information on customer acquisition, retention and churn for each of these segments, and see if some segments are being overlooked or neglected. You should also provide some information on what marketing & sales channels are used to serve and attract customers.
Identify your largest clients
In addition, they’ll want to know which segments are growing fastest and which ones are struggling. This will also enable them to see if your customers are well diversified. If 80% of revenue is coming from 20% of your customers, you will have challenges if one of those customers decides to leave. The example of Imagination Technologies, who were a key supplier to Apple until the contract was pulled is the case study of why investors are nervous about over-reliance on a single customer. They want to easily identify areas of your business that look saturated and areas they could improve upon.
They will also want to see the contracts from these large customers to make sure they are secured long-term.
Explain your industry
Investors will want to try and understand the size of the opportunity. This means figuring out the size of the market for your products and identifying your competition.
You may want to compile some research on the macroeconomic conditions of your industry and the geographical areas you have a foothold in, and how future events could affect your customer segments. In the event of unfavourable market conditions, they will want to make sure you have a plan for how to weather the storm.
Analyse your Competitors
Understanding how your business compares to the competition is vital to an investor because it gives them a good idea of your strengths and vulnerabilities. They want to make sure you have a competitive edge, and that you have unique relationships with your customers.
By comparing your customer growth, diversity and churn to other companies in the industry, they can get a clear idea of where you’re performing well and where you’re struggling. Having this information available to investors ahead of time will not only help speed things along but also help you strengthen these areas before you’re under the microscope.