Is Your Revenue Stream Diversified?
A company called our firm today to seek assistance in their business operations. The firm had been 99% dependent upon government contracts until 2008, when the economic recession occurred. At that time, the company leadership decided to pursue commercial business, as the governmental contractor business had decreased significantly.
Sadly, the company had been very successful in the years 2005-2008 with government contracts. That is a GOOD thing– not a sad thing, HOWEVER, they failed to recognize and realize that without a diversified revenue stream and being dependent upon only one major customer, any swing could be disastrous. That is what happened. The government contract did not bring in the expected revenue.
The expected government contract revenue was anticipated to help pay for a commercial enterprise. The commercial enterprise was established, built up, but did not have any organic funding source other than the anticipated revenue from the government contract. You can see where this is headed.
The commercial enterprise spent significant amounts of funding, with the anticipation of the government contract revenue making up any shortfall. That did not happen. Company officials elected to take out personal credit card loans to pay for business operations. Now, 3 years later, the company is almost bankrupt without some injection of capital. The question that was asked of our team was “could we help with capital?”
We are not in the financial services industry, however, the company was referred to us by a commercial banker. Sadly, the firm has no resources and without any capital injection, will probably be out of business within a matter of weeks.
Where is all of your capital sources? Are you dependent upon one primary revenue stream, without any diversification? If the answer is yes, now is the time for some professional consultation help to help insure that you don’t find yourself and your business in the same trap as this business.
Revenue stream diversification is an important part of business operations. Becoming overly dependent upon one customer or source of revenue is not an optimum condition to be placed in.
Take a look at your revenue streams– if they are not well diversified, with no one stream comprising more than 35% of the total, now is the time to explore how to create the diversification required so as not to be in a box relative to dependency upon one unique client or customer.