There is no federal statute that says “31% is illegal.” There is a buyer, a lender, and a quality of earnings team who will price the cliff.
How should you measure concentration before you argue about it?
Ask for trailing-12 and trailing-36 sales by customer. Roll up related legal entities that share a treasury. If the ERP can, split gross profit, not just revenue. Three “customers” that are one OEM with three bill-to names are one customer.
Census CBP 2023 still counted 284,452 plants, 68.4% under twenty employees (Source: Census CBP). Small shops often have a hero account. That is common. It is still priced.
| Test | What “too much” looks like | What does not cure it |
|---|---|---|
| Sales share | One group near or above ~25–30% | “They have been loyal” |
| Gross-profit share | The hero account is also the only profitable one | A blended 18% GP that hides the cliff |
| Related entities | Three names, one treasury | Treating each PO as diversification |
| Backlog | Forecast and hope labeled as firm | A handshake LTA with no assignment clause |
| Scorecards | Past-due dollars and open claims on the hero | A teaser photo of their logo |
BizBuySell’s manufacturing median close in the 2025 review ran 223 days (Source: BizBuySell). That is a long exclusive to spend arguing that a 40% customer is “sticky” without a contract the buyer can inherit.
What do buyers and lenders do instead of arguing adjectives?
They discount the multiple. They move dollars into an earn-out. They hold back cash. They walk. Earn-out versus a lower cash price is the structure sibling. Buying a manufacturer is the pillar.
SBA 7(a) still sits in a $5 million box with a 10% injection under SOP 50 10 8 (Source: SBA). A note that depends on one purchasing manager’s mood is a hard underwrite.
IBBA Market Pulse Q1 2026 found 83% of deals over $5 million drew three or more offers (Source: IBBA / PR Newswire). Competition helps. It does not erase a cliff if every bidder sees the same schedule.
Why backlog is not automatically the opposite of concentration
Firm orders, releases, long-term agreements, and forecast are four different piles. A twelve-month “backlog” that is a sales pipeline is not a cure for a 35% account. The owner page is the split. This FAQ will not invent a coverage ratio.
Working-capital peg still matters. Receivables piled into the hero customer are peg risk as well as sales risk. The FAQ index keeps these nouns on separate slugs on purpose.
How should a seller start a second source without leaking a sale?
Quietly, and before the teaser. A second source started in year minus one is a value-creation project. A second source started after the first buyer asks “what if they leave?” is a rescue. Buyers can tell the difference. So can the hero customer if your estimator talks at the diner.
Do not use the sale as the reason you are finally calling on commercial work. Use capacity, a new cert, or a geographic story that is true. If you cannot tell a true story, you are not ready to diversify under a process. You are ready to price the cliff.
A long-term agreement that forbids assignment is not a cure. It is a novation problem wearing a comfort blanket. Read the paper. If the buyer cannot inherit the release, the 28% account is still a cliff after close.
Related-entity rollups belong in the first schedule, not in a footnote the QoE firm finds. Three bill-tos that share a treasury are one customer. Treat them that way before someone else does.
If you already know the hero account is shopping a second source, say so. Hiding a dual-source letter is how a 2.75x conversation becomes a walk. Priced truth still closes. Surprised truth often does not.
What should you put in the first room if concentration is the question?
The 36-month customer file. The related-entity map. Scorecards. Open claims. The actual contract or release language. Whether the buyer can be introduced before close, and when. Whether you have already started a second source because you knew this question was coming.
A 22% account with a transferable release and a second commercial book is a different file than an 18% account that is also the only profitable work. Percent is the start. Gross profit and contract language are the test. The owner page is how you build the schedule. This FAQ is only the pricing rule. Bring the 36-month file before you argue adjectives.
Jason Taken is a business broker. He will not pretend a logo is diversification. Roll up the buying group before you celebrate a low headline percent. Three bill-tos that share a treasury are still one cliff.
A loyalty speech is not a schedule. Bring trailing-36 sales and the related-entity map, or do not argue the percent.
Educational information only. Read the owner URL, then book a confidential intro call if you want the schedule staged rather than argued.