One Client Was Most of the Business They Almost Bought

The situation

Hodan and Amina had been running a small commercial cleaning business together for four years, fitting the work around their day jobs — Hodan on the phones at a call centre, Amina on the floor of a factory. Evenings and weekends went to their own two dozen or so clients: small offices, a couple of retail units, a handful of medical clinics around Kitchener. It was steady but modest, and both of them had started to talk seriously about walking away from their day jobs if the business could grow enough to support it.

The opening came when a competitor named Winston, who ran a similar-sized cleaning company in the same part of the city, decided he wanted out. Winston was ready to retire from the physical work and had no one in the family interested in taking it over. He and Hodan had known each other professionally for years — the kind of relationship where competitors occasionally referred overflow work to each other — and when Winston mentioned he was thinking of selling, Hodan asked what he wanted for it. They settled on an asking price of roughly $160,000 for the business: its client contracts, its equipment, and its goodwill, structured as a purchase of the business assets rather than a purchase of Winston's corporation.

For Hodan and Amina, the appeal was obvious. Buying Winston's client list would roughly double the size of their own business overnight, finally making it large enough that both of them could leave their day jobs. They had saved a portion of the price and expected to finance the rest, and they came to our firm once they had a signed letter of intent, wanting a purchase agreement drafted and the deal reviewed before they committed the savings they had spent years building.

What the review found

Before drafting anything, our practice on a small business purchase like this is to review the target's financial and contract records — due diligence — to confirm that what the buyer is paying for actually exists and is worth what the seller says it is worth. For a service business built on client contracts rather than inventory or real estate, that review centres on one question above all others: where does the revenue actually come from, and how much of it is guaranteed to keep coming?

Winston's business generated roughly $140,000 a year in revenue. On paper, that looked consistent with the asking price. But when we broke the client list down by dollar value, one contract stood out: a single commercial account, an office cleaning arrangement Winston had held for years, accounted for close to $75,000 of that total — more than half the business. The other twenty-odd clients made up the rest, in amounts small enough that losing any one of them would barely register.

This is what is generally called customer concentration — a business where the loss of one client would materially change its value. It is not automatically disqualifying; plenty of profitable small businesses run on a handful of large accounts. The problem is that a buyer paying for the whole business is, in substance, paying mostly for that one contract, and contracts do not always survive a change of ownership. We asked Winston directly whether the large client had any awareness that the business might be sold, and whether the contract itself said anything about what happened on a change of owner. It turned out the arrangement with that client had never been put in writing beyond an old email confirming the monthly rate — no signed service agreement, no renewal term, and critically, no assurance that the client would keep using the business once new owners, whom the client had never met, took over the account.

That gap changed the shape of the deal. If Hodan and Amina paid $160,000 on the assumption that all of Winston's revenue would transfer, and the largest client instead chose a different cleaner within the first few months — which happens more often than sellers like to admit, since loyalty in service contracts is frequently to the individual doing the work rather than to the business name on the invoice — they would have paid full price for roughly half a business.

What we did

1. Quantified the concentration in writing before negotiating anything. We put the numbers in front of Hodan and Amina plainly: about 54% of revenue sat with one client, on an informal arrangement with no contract term and no transfer protection. Understanding the actual exposure, rather than a general sense that "one client is big," let them decide how much risk they were willing to accept and where their negotiating room was.
2. Required direct client confirmation before closing. Rather than relying on Winston's assurance that the relationship would carry over, we made it a condition of the deal that Winston introduce Hodan and Amina to the client before closing and obtain the client's written acknowledgment that it intended to continue the arrangement under new ownership. A seller's promise about a client's loyalty is not evidence of it; the client's own words are.
3. Structured a holdback tied to retention. Even with a positive introduction, a client's stated intention is not a guarantee. We recommended holding back roughly $30,000 of the $160,000 purchase price in trust after closing, to be released to Winston only if the large client was still an active customer, at broadly the same volume, after a set number of months. This meant the risk of the client leaving sat partly with the person who had the most information about that relationship, rather than entirely with the buyers.
4. Added seller warranties about the client relationship. The purchase agreement included Winston's confirmation that he had not received any notice, formal or informal, that the large client intended to end or reduce the arrangement, and that he was not aware of any dispute or dissatisfaction on that account. A false statement here would have given Hodan and Amina a basis to claim against Winston directly if the client left shortly after closing for reasons he already knew about.
5. Built in a short transition period. We negotiated a clause requiring Winston to personally introduce Hodan and Amina to every client above a set revenue threshold and to remain available for a limited number of weeks after closing to help with the handover, paid separately from the purchase price. For a relationship-driven service business, a seller who disappears the day after closing is often the fastest way to lose the clients being paid for.

The outcome

The client introduction happened about two weeks before the scheduled closing date, and it did not go entirely smoothly. The large client confirmed it was willing to continue with Hodan and Amina, but also mentioned, almost in passing, that it was planning to reduce the scope of the cleaning contract by roughly a third in the coming months as part of its own cost-cutting, regardless of who owned the cleaning company. That was information Winston had not disclosed, and by his account, had not fully registered as significant himself.

Because this surfaced before closing rather than after, it changed the negotiation rather than becoming a dispute. Hodan and Amina were not willing to pay $160,000 for a client base that was about to shrink by a meaningful margin. Rather than walking away from the deal entirely, the two sides renegotiated: the purchase price came down to roughly $138,000, reflecting the reduced expected revenue from the large account, and the holdback structure stayed in place as a further protection in case the client's actual reduction turned out to be larger than described. Winston accepted the lower price rather than relist a business whose main selling point — a large, stable contract — he now had to disclose to any other buyer as well.

The deal closed roughly six weeks after the initial letter of intent, with Hodan and Amina paying about $22,000 less than the price they had originally agreed to. The large client did reduce its contracted hours as warned, but stayed on with the business under the new ownership, and the holdback was released in full once that was confirmed. Hodan gave notice at the call centre a few months later; Amina followed once the combined client base had stabilized enough to support both of them full time.

Nothing about this outcome involved a lawsuit, a walked-away deal, or a client who left without warning. The concentration risk was real, and the business Hodan and Amina ended up owning was smaller than the one they thought they were buying when they signed the letter of intent. But because that gap was found and priced during due diligence rather than discovered afterward, they paid a fair amount for what they actually received, instead of a full price for a business that was about to be worth less than advertised.

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