10 Things That Kill Your Business Valuation

When business owners get their valuation, they're often surprised — and not in a good way. The number is lower than expected, and they don't understand why.

Usually, it comes down to a handful of issues that buyers see as risk factors. Here are the most common valuation killers, and what you can do about them.

1. Owner Dependence

This is the big one. If you're the primary salesperson, the main technician, and the only one who knows how everything works, buyers will discount heavily. They're not just buying cash flow — they're buying cash flow that continues after you leave.

Fix it: Hire or promote people to handle key functions. Document your processes. Start removing yourself from day-to-day operations at least 1-2 years before you want to sell.

2. Customer Concentration

If your top customer is 25% of revenue — or worse, your top 3 customers are 50% — that's a huge risk factor. One customer leaving could crater the business.

Fix it: Actively diversify. Set a cap (say, no customer over 10% of revenue) and work toward it. This takes time, so start early.

3. Revenue Concentration

Similar to customer concentration, but about services or products. If 80% of your revenue comes from one offering, what happens when that market shifts?

Fix it: Diversify your service mix. Add adjacent offerings. Build multiple revenue streams.

4. Messy Financials

Personal expenses running through the business. Inconsistent categorization. No clear P&L by service line. Cash-basis accounting that hides real performance.

Buyers can't pay for what they can't verify. Messy books mean either a lower offer or a longer, more painful due diligence process.

Fix it: Get a good bookkeeper or accountant. Clean up your categories. Move personal expenses out of the business. Prepare financials that would make sense to an outsider.

5. No Management Layer

If you're the owner, the manager, the HR department, and the customer service team, the business can't run without you. That's not a business — that's a job.

Fix it: Hire or develop a GM or operations manager. Delegate authority, not just tasks. Build a team that can function when you're not there.

6. Short Lease or Bad Terms

A business tied to a location with only 2 years left on the lease is risky. What if the landlord doesn't renew? What if rent doubles?

Fix it: Negotiate a longer lease term with reasonable renewal options before you go to market. 5+ years remaining is ideal.

7. Declining Revenue

A business that's been shrinking for 3 years is worth less than one that's been growing. Even flat revenue is better than decline.

Buyers pay multiples on future earnings, not past. If the trend is down, they'll assume it continues.

Fix it: If you can, turn around the trend before selling. If you can't, be realistic about valuation expectations.

8. No Recurring Revenue

Businesses that start each month at zero have to constantly find new customers. Businesses with subscriptions, service contracts, or repeat purchase patterns have built-in revenue.

Fix it: Build recurring revenue streams. Membership programs, maintenance agreements, subscription offerings. Even converting 20% of revenue to recurring materially improves valuation.

9. Undocumented Processes

If everything is in your head, it leaves with you. Buyers want to see SOPs, training materials, documented workflows. This shows the business is systematized and transferable.

Fix it: Document your key processes. Create training materials. Build an employee handbook. Make the business teachable.

10. Legal or Compliance Issues

Pending litigation, regulatory problems, tax issues, unlicensed employees, environmental concerns — any of these can kill a deal or massively reduce value.

Fix it: Get clean before you go to market. Resolve legal issues. Fix compliance gaps. Address regulatory concerns. Don't surprise buyers in due diligence.

The Common Theme

Notice the pattern: most of these issues come down to risk. Buyers pay lower multiples when they perceive higher risk.

Your job, if you want to maximize value, is to de-risk the business before you sell. That means making it less dependent on you, more predictable, better documented, and easier to verify.

The best part? These same improvements make your business more profitable and easier to run right now, whether you sell or not.

What To Do Next

Pick the top 2-3 issues from this list that apply to your business. Start addressing them now. Don't wait until you're ready to sell — these fixes take time.

And if you want to talk through your specific situation, book a call. I'm happy to help you think through what would move the needle on your valuation.