Beyond Valuation: What Makes a Business Actually Sellable
Your accountant can tell you a business is worth $2 million in about two minutes. Apply a multiple to EBITDA, adjust for a few obvious factors, done. But here's what that number doesn't tell you: whether anyone can actually buy it.
Business A
Owner handles all key customer relationships. One customer represents 60% of revenue. No management team. Contracts are verbal agreements based on personal trust. The owner has been "about to retire" for five years but can't figure out how to leave.
Business B
Operations manager runs day-to-day. Largest customer is 12% of revenue. Recurring service contracts with 18-month average tenure. Documented processes. Clean books. Owner takes six weeks holiday annually.
Business A is worth more on paper. Business B will actually sell—probably within 90 days, with clean terms. Business A? It might sit on the market for years, ultimately selling for a fraction of its "value" with a painful earnout structure, or not selling at all.
This is the difference between valuation and saleability. And it's the difference that most business owners—and many advisors—completely miss.
Two Different Questions
Valuation answers: "What is this business worth?"
Saleability answers: "Can someone actually buy it, and how?"
These sound like the same question. They're not. Valuation is a theoretical exercise based on earnings, multiples, and comparable transactions. Saleability is a practical assessment of whether a transaction can actually happen—and what it would look like if it did.
A high valuation with low saleability is like a house appraised at $1.5 million that's impossible to get a mortgage on because of structural issues. The number means nothing if no one can actually complete the purchase.
The Real Work
A simple EBITDA multiple is a two-minute job. The real work isn't in the pricing—it's in understanding how a business is structured, how a buyer could finance it, and what would need to change for a transaction to actually happen.
The Financing Reality Most Owners Miss
Here's something most business owners don't think about until they're deep in a failed transaction: very few buyers write a single cheque for the full purchase price.
Most small and medium business transactions involve a combination of bank financing, buyer equity, seller financing, and sometimes earnout structures. The specific mix depends heavily on characteristics of the business being sold—characteristics that have nothing to do with reported profitability.
This is where things get complicated. Banks have specific criteria for what they'll fund. Those criteria are often stricter than owners expect, and they examine factors that owners don't think about: customer concentration, owner dependency, revenue predictability, asset base, and more.
When banks won't fund enough of the deal, the gap has to come from somewhere. Usually that means more buyer equity (which limits your buyer pool to wealthy individuals) or more seller financing (which means you carry risk and wait years for your payout).
The structure of your business determines what financing structures are possible. And what financing structures are possible determines whether—and how—you can actually sell.
When Saleability Problems Surface Too Late
These issues rarely surface during the valuation conversation. They surface later—often much later—when deals start falling apart.
The Manufacturing Business That Couldn't Close
A manufacturing business with $800K EBITDA was valued at $3.2M. Strong financials, growing revenue, modern equipment. The owner found a buyer within three months. Everything looked perfect.
Then due diligence started. The buyer's bank discovered that three customers represented 72% of revenue—and all three relationships were managed personally by the owner. The bank wouldn't fund the deal at any reasonable level.
The buyer needed $2.4M in financing. The bank offered $800K. The deal required the seller to carry a $1.2M note subordinated to bank debt, plus a $400K earnout over three years.
The owner walked away with $800K at closing instead of $3.2M. Eighteen months later, he was still waiting on earnout payments while watching the new owner struggle with the customer relationships he'd never properly transitioned.
The Professional Services Firm Nobody Could Buy
A consulting firm with fifteen years of history and consistent $400K profits. The owner had been approached by several interested buyers over the years but never got serious about selling.
When he finally decided to exit, he discovered the problem: he WAS the business. Every major client relationship was his. Every proposal went through him. His two employees handled admin and delivery, but couldn't sell or manage client relationships.
Multiple buyers walked away. The business wasn't bankable. Individual buyers couldn't justify the risk. Strategic acquirers weren't interested in buying relationships that might not transfer.
After two years on the market, he closed the business and walked away with the value of the equipment and receivables—less than $100K from a business that had generated $400K annually for over a decade.
These aren't unusual stories. They're the norm for businesses that look good on paper but haven't been structured for transferability.
Why This Is More Complex Than It Appears
You might think the solution is straightforward: reduce customer concentration, remove owner dependency, document everything. Simple enough, right?
Not quite. These factors are deeply interconnected, and the relationships between them aren't obvious.
Concentration Creates Dependency
High customer concentration often masks owner dependency. When two customers represent 60% of revenue, those relationships are almost always managed at the owner level. Fixing one without the other doesn't work.
Dependency Limits Growth
Owner-dependent businesses struggle to diversify their customer base because the owner becomes the bottleneck. They can't take on more relationships without cloning themselves.
Structure Affects Financing
The way revenue is structured—project vs recurring, contract vs handshake, concentrated vs diversified—determines what financing options exist. This affects who can buy and what they can pay.
Timing Compounds Everything
These issues take years to fix properly. An owner who discovers them when they're ready to sell is often too late. The window for meaningful change has passed.
Add to this the complexity of deal structures themselves: bank lending criteria vary by institution and change over time. Different buyer types have different capabilities and requirements. What works for a strategic acquirer doesn't work for an individual buyer. What a PE firm needs is different from what a management buyout requires.
And every business is different. The specific combination of factors—and their severity—creates a unique situation that requires analysis, not formulas.
What Happens When Owners Get This Wrong
The Consequences of Poor Saleability
- Deals that fail in due diligence — After months of negotiations, legal fees, and emotional investment, buyers walk away when they discover structural problems
- Extended earnouts — Instead of clean exits, owners spend 2-5 years tied to the business, waiting for contingent payments that may never fully materialise
- Seller financing at risk — Carrying a note subordinated to bank debt means if the business struggles under new ownership, you're last in line to get paid
- Steep price discounts — Buyers apply "risk discounts" that can reduce effective price by 30-50% from the theoretical valuation
- Limited buyer pool — When financing is hard to obtain, only cash buyers can participate. That shrinks your market dramatically and weakens your negotiating position
- Complete failure to sell — Some businesses simply can't be sold. Owners either work until they can't, wind down operations, or close and walk away with liquidation value
The frustrating part: most of these outcomes are preventable. But prevention requires understanding the issues early and taking action before you need to sell. By the time you're actively marketing the business, it's often too late for meaningful change.
The Time Problem
Even when owners understand saleability issues, fixing them takes time. Real structural change—reducing owner dependency, diversifying revenue, building management capability—doesn't happen in months. It happens over years.
Customer diversification requires winning new customers while maintaining existing ones. That's a growth challenge, not just a strategy shift. Building management capability means hiring, training, delegating, and proving the model works. Transitioning relationships takes even longer—customers need to trust the new people, and that trust builds slowly.
Owners who start thinking about exit three years in advance have options. Owners who start thinking about it when they're burned out, health-challenged, or ready to move on immediately often don't.
Understanding Your Buyer Pool
Different buyer types have vastly different capabilities, requirements, and typical deal structures. Understanding who could realistically acquire your business—and what they would need from the deal—changes how you think about preparation.
Individual buyers typically need bank financing and seller support. Strategic acquirers can often pay cash but need strategic fit. Private equity has scale requirements most SMEs don't meet. Management buyouts require seller patience and financing flexibility.
The characteristics of your business determine which buyer types are realistic options. If your business is only attractive to one buyer type—and that buyer type needs things your business doesn't have—you have a problem that valuation alone won't solve.
The broader your potential buyer pool, the more likely you are to achieve a good outcome. Broadening that pool requires understanding what each buyer type needs—and structuring your business to meet those needs before you go to market.
The Questions That Matter
Valuation asks: "What multiple should we apply to earnings?"
Saleability assessment asks harder questions:
- Who could actually buy this business? What financing would they need?
- Would a bank fund this acquisition? At what level? With what conditions?
- What happens to key customer relationships when ownership changes?
- Can this business operate—and grow—without the current owner?
- What risks would a buyer discover in due diligence? How would they price those risks?
- What deal structure is realistic given the business's characteristics?
- What would need to change for better outcomes? How long would that take?
These questions don't have simple answers. They require analysis of the specific business, its specific situation, and the specific market conditions at the time. Generic advice and industry averages don't cut it.
Key Takeaways
- Valuation and saleability are different questions — A high valuation with low saleability might mean you can't sell at all, or only on unfavourable terms
- Buyers don't write single cheques — Understanding financing structures matters more than most owners realise
- Banks have strict criteria — Owner dependency and customer concentration are deal-killers, not just discounts
- These issues are interconnected — Fixing one problem often requires fixing others; the relationships aren't obvious
- Structural change takes years — By the time you're ready to sell, it's often too late for meaningful improvement
- Your buyer pool determines your options — Not all buyer types can buy all businesses
- Early assessment creates options — Understanding these issues early gives you time to act; understanding them late leaves you stuck
Understand Your Business's True Position
Our Succession Assessment goes beyond simple valuation to answer the questions that actually determine your exit options: Who could buy your business? How would they finance it? What's blocking the transaction? And what—if anything—can you do about it?
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