To first understand how to mitigate the risk of customer concentration, you first must understand what customer concentration means.
Companies may report secondary sources of income that are not derived from its main business on their income statements. To determine whether this income should be included in the value of a business, you must first know what the income is related to.
Whether a business owns or leases the faciltiy which it operates from can have a large impact on business value.
Once SDE is calculated, the next step is to determine a reasonable multiple (or range of multiples) to apply to the SDE earnings stream. This article will serve as a guide to determine a reasonable and supportable range of earnings multiples for the vast majority of industries financed by SBA lenders. By applying these multiples to the SDE earnings stream, you will have a reasonable range of values for the subject business, often referred to as rule of thumb values.