Investments Risk: Companies with One Supplier or Customer

There is a big investment risk when it comes to getting involved with a company with one supplier or customer. As an investor, this should throw up a red flag and open your eyes to the fact that you are taking a very big risk. Companies in this position are exposed to great risk because the supplier or customer could go under, change their pricing structure, or find another partner to do business with. Most prefer to invest in companies that offer the stability of a varied supplier and/or customer list.

Supplier Could Go Under

A company that relies on one supplier is putting themselves in a vulnerable situation. If the supplier goes out of business, for any reason, the company will be stuck in the position of having to find a replacement. While this may be possible, the terms and conditions, including the price, may not be as favorable. In turn, this can quickly have a negative impact on the company’s bottom line.

Supplier Could Change the Pricing Structure

Suppliers need to make money, just like the company you are thinking about investing in. This often times leads to a supplier changing their pricing structure. This is particularly true if a contract or agreement between both parties has recently expired.

Supplier Could Fall Behind

A supplier that cannot keep up is one that is going to hold up its partners. In this case, the company on the receiving end will be forced to adjust their business plan.

Customer Could Go Out of Business

A company with only one customer is in a bad spot. If that customer goes out of business, there is a good chance that the company will be taken down with them. Relying on one customer for 100 percent of revenue is a mistake. For investors, companies in this position should be looked at very carefully.

Customer Could Find Somebody Else

Is the company you are investing in the only one in their industry? If not, their one customer could easily make a change, leaving them stranded and searching for answers.  

Customer May Want a Better Price

When a company ties their entire income to one customer, a decrease in revenue could come at anytime. If the customer decides that they want a better price, they will do one of two things: negotiate a better deal or work with another provider. Either way, the company is going to end up on the bad side of things.

There are more companies with one supplier or customer than most investors realize. This is why it is essential to research every aspect of every investment. As an investor, you are much better off getting involved with companies that have multiple suppliers and customers. This way, if one goes out of business they are in position to continue forward without losing much from their bottom line. Subsequently, investors are protected from huge losses.

A company with one supplier or customer is one that most investors will avoid. Even if their earnings are solid, there is always a chance that this could drastically change in the immediate future. This type of company has put themselves, as well as their investors, at risk.

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