(Photo courtesy of 10x Groups)
Recently I received a call from a business owner that is, sadly, all too common. “Hey, I heard you sell businesses. I just tried to sell mine and the deal blew up when the buyer reduced the original price they offered from $10,000,000 to $7,000,000. It should have been worth $10,000,000 according to the EBITDA multiples the online valuation tool I used. What did I do wrong?”
After three and a half decades in helping buyers and sellers through the mergers and acquisitions process — and a few hundred transactions completed — I’ve learned that the biggest shocks in a sale process are rarely the fault of the buyer. They come from the realities of the seller’s business.
What happened to the caller is simple. It was predictable and it could have been avoided with proper preparation. He got hit with a valuation meltdown. From his perspective, $3 million “evaporated.” Not because the business was failing, but because its foundations were weaker than the financials suggested.
The Meltdown Discounts
- Founder Dependency
When the founder is the product, process, and IP, buyers see a single point of failure. Documentation, delegation, and succession are valuation levers — not administrative tasks.
- “Close-Enough” Financials
If books don’t reconcile, if adjustments get fuzzy, or if revenue recognition is “creative,” trust disappears and so does enterprise value. Clean financials are not value enhancers. They are table stakes.
- Hockey Stick Optimism
Projections without defensible sales pipeline, unit economics, and customer data are discounted as fiction. Buyers have been burned before.
- Customer Concentration
When a single customer accounts for more than 20%, it’s risk. At 80%, it’s dependency. One big customer and a contract with a 30-day termination clause will spook a buyer in a flash.
- Corporate Un-Governance
Buyers and their professional advisors expect to see corporate discipline — meetings, minutes, reporting. When governance looks like it runs through texts and Slack screenshots, buyers assume the rest of the business is equally chaotic.
- Working Capital Mismanagement
Sellers want to point to top-line growth. But if cash is leaking faster than revenue arrives, the growth is coming at a cost that will cost you. Multiples fall when buyers see bloated receivables, long collection cycles, short payables, and escalating cash-sucking growth.
The Brutal Reality
Most small companies suffer from at least one — three of these issues. That’s enough to drive the price down millions or more. Or drive a good buyer away entirely.
A business that has all six flaws? The business owner will be fortunate to even sell — at any price.
Defending Value
Smart Sellers prepare to exit well in advance. They operate as if the business is always ready to sell… even if they have no intention of selling any time soon. They install:
- Systems that run independently of the founder
- Audited or review-ready financials
- A functioning Board and formal governance
- Customer diversification
- Strong working capital discipline
- Centralized, organized contracts and documentation
I’ve helped clients boost their valuation by 10-50% — with zero new revenue — simply by fixing foundational flaws.
The Uncomfortable Truth
When you want to sell your company, you’re not selling your story, or even your numbers.
You’re selling certainty.
Every doubt creates a discount.
Every discount costs real money — sometimes a major meltdown in valuation.
Entrepreneurs who win the valuation game don’t just build businesses that show a profit. They build sustainable, transferable, trustworthy organizations that can grow predictably under new ownership. If you’d like to get some professional guidance on how to do that, grab my number one selling book on Amazon: Finish Strong-Exit Well: How to Prepare, Position and Sell Your Business for Top Dollar.
