Their customer demand for the products and services
offered by a business reflect their needs for those products and services. Customers can be retail or wholesale. Over reliance on anyone’s customer or anyone’s customer category increases the risks to maintaining profit levels. The loss of a major customer on which the business relied will impact on its profit level. It may even challenge the viability of the business itself.
Terms of trade offered to customers can also have risks associated with it. Offering customers payment terms over time is essentially providing them with a ‘loan’.
Extended terms tie up capital in the normal operation of the business. The capital tied up in funding customers to purchase business’s products and services is likely to reduce the overall return on the funds invested in the business; and hence its value. Poor debtor policies and controls can see bad debt levels increase with the obvious reduction in profit.
The customer base is likely to turnover over time. Assuming that customers will remain forever is simply not realistic. Businesses without marketing activities designed to bring new customers to the business to, at least, maintain the customer base are likely to see profits fall over time.