HedgeStone Business Advisors
The Gold Standard of Business Brokering

Get Your Free Copy

Enter your info to download this resource.

Please fill in all fields.
Back
The Gold Standard of Business Brokering

5 Things That Kill
Your Business Valuation

(And How to Fix Them Before You Sell)

Your Business is Worth Less Than You Think.

After selling 300+ businesses, we've noticed a pattern. Sellers think their business is worth $500K. The market says $300K. The gap? Usually these 5 issues. The good news: most are fixable.
1
YOU Are the Business
Severity
Signs You Have This Problem
  • All key customer relationships are with you
  • You're the only one who knows how things work
  • Employees ask you for every decision
  • You work 50+ hours/week and can't take vacation
The Math
Business that runs without owner: 3-4x SDE
Business dependent on owner: 1.5-2.5x SDE
Difference on $100K SDE: $50K-$150K in lost value
The Fix
30 Days
Document all processes only you know
90 Days
Train a #2 who can run things
12 Months
Build management layer, prove it works
Signs You Have This Problem
  • One customer is >20% of revenue
  • Top 3 customers are >50% of revenue
  • No contracts with your biggest customers
The Math
Diversified revenue: 3x SDE
Single customer is 30%: 2-2.5x SDE
Single customer is 50%+: Often unsellable or steep discount
The Fix
30 Days
Calculate actual percentages, get contracts in place
90 Days
Pursue new customer acquisition
12 Months
No single customer over 15%
Signs You Have This Problem
  • Personal expenses run through the business
  • Tax returns don't match your P&L
  • You can't explain revenue fluctuations
The Math
Clean, verifiable books: Full multiple
Messy books: 10-30% discount
Unverifiable claims: No serious buyers
The Fix
30 Days
Hire bookkeeper, separate accounts
90 Days
Reconcile P&L to tax returns
12 Months
2-3 years of clean, consistent financials
Signs You Have This Problem
  • Revenue dropped 10%+ in any recent year
  • You don't have a clear answer why
  • You're hoping buyers don't notice
The Math
Growing revenue: Premium multiple
Flat revenue: Standard multiple
Declining (explained): Small discount
Declining (unexplained): 20-40% discount or no buyers
The Fix
30 Days
Analyze exactly why, prepare narrative
90 Days
Demonstrate stabilization or recovery
12 Months
Two quarters of growth > decline
Signs You Have This Problem
  • Less than 3 years left on lease
  • No renewal option
  • Rent is above market rate
  • Landlord is difficult or unresponsive
The Math
5+ year lease with options: Full value
2-3 years remaining: 10-15% discount
Under 2 years: 20-30% discount
Bad landlord relationship: Potential deal-killer
The Fix
30 Days
Review terms, contact landlord
90 Days
Negotiate extension BEFORE listing
Best Case
New lease with 5+ years

How These Add Up

What a $100,000 SDE business might be worth:

Scenario Multiple Value
Clean on all 5 factors 3.5x $350,000
Owner dependent (-0.5x) 3.0x $300,000
+ Customer concentration (-0.5x) 2.5x $250,000
+ Messy financials (-0.3x) 2.2x $220,000
+ Declining revenue (-0.3x) 1.9x $190,000
+ Bad lease (-0.2x) 1.7x $170,000

Worst case: You're leaving $180,000 on the table.

The Timeline Reality

Issue Fix Timeline
Messy financials3-6 months
Owner dependency6-12 months
Customer concentration6-18 months
Declining revenue6-12 months
Bad lease1-3 months (if landlord cooperates)

Start now. The best time to fix these was 2 years ago. The second best time is today.

These issues are fixable. Start with the one that affects you most and work backwards from your target sale date.

HedgeStone Business Advisors | hedgestone.com | (561) 593-3711