Thursday, February 28, 2008

Walmart Sneezes; Cott Catches a Cold

For any size business, too much revenue from one customer can lead to difficulty in obtaining a business loan to provide the working capital.

Walmart has driven home this lesson to Cott Corporation, a manufacturer of private label sodas and drinks. As reported in The Wall Street Journal (subscription required), Walmart has informed Cott that it will be reducing the amount of shelf space allocated in its stores for private label sodas and drinks. Walmart will be filling that shelf space with higher margin products from Cadbury Schweppes.

Walmart is Cott's biggest customer and represents approximately 38 percent (approximately $640 million) of Cott's annual revenue which totaled over $1.7 billion in 2007. While it is still unclear the specific dollar impact to Cott, the company concedes that the Walmart move "would be significant to Cott's business plans". In English - that means less future cash flow and nervous bankers.

You can see why from the viewpoint of the bank, once your revenues from a single customer exceed 10 percent of total sales, you become less bankworthy. If a customer exceeds 20 percent of total sales, your company may see a reduction in your borrowing base and higher interest rates. Customer concentration greater than 30% - better be using factoring!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Walmart , Cott , working capital , cash flow

No comments: