Ed Weeks explains how owner dependency tanks business valuation. When the owner is the main salesman and customer contact, buyers see they're purchasing a person, not a business, and offer lower multiples or earn-outs. Rejected add-backs of $150,000 at a 7-times multiple costs over $1 million in sale price.
Owner dependency. If you're the top salesperson, the estimator, and every key customer's first call, the buyer is buying you, and you're leaving. They respond with a lower multiple, or with an earnout you have to stay and earn. Three add backs. A lot of privately held businesses have legitimate E E bit da adjustments. The question is whether each adjustment has support a quality of earnings firm will accept. $150,000 of rejected add backs at seven times is more than a million dollars of price.
