“I’ve owned this business for almost twenty years, and I’ve grown annual revenue to $15 million doing no marketing. Imagine what a buyer could do if they just put focus on customer development.” Winston (not his real name) is 58 years old. He launched his company in the late ‘90s after getting laid off from one of Nashville’s largest hospital companies. Winston is a master relationship builder, I could tell that just after two meetings with him. His wife has just come through a serious health crisis, and he tells me he promised her he’d sell the business and start the traveling they have dreamed about since they were dating. Given his healthy margins and solid growth rate, I told Winston we could likely get a 7X deal on his trailing twelve-month EBITDA.  He did some quick math in his head, then smiled and winked as he said, “Yeah, that’ll be enough for a lot of travel.” But once we started serious conversations with private equity buyers, I knew that getting to 7X was going to be a problem. One potential buyer put it to me this way, “Winston hasn’t done any marketing because Winston knows everybody. How secure will the revenue be once he is out of the picture?” That buyer’s comment was a wake-up call for me.  A business owner usually takes pride in saying they have been successful without the need for marketing. That implies an underlying strength in the business. But I now realize that comment can also imply an underlying weakness in the business, and that being the seller’s relationships are driving revenue. This perception gives rise to the concern those relationships might go away when the seller is out of the picture. That concern will invariably negatively impact value or the terms of payment. Winston understands the problem, sort of. He knows he is the only person in his business that is connected with all of the key customers which have been buying from him for years. In a couple of situations, those key customers are even getting golfing buddies. Winston sincerely believes those customers will stay with the buyer as long as the company provides the same service levels he has over the years.  While that might indeed be true, Winston has to also acknowledge that it is a risk factor in the eyes of the buyer. We’ll see how it shakes out, but my guess is the buyer will want some of that 7X valuation paid as an earn out over the first couple of years. To be sure, no seller likes having to be paid via an earn out, and I’m not a fan of earn outs either. But there can be extenuating circumstances when a buyer’s risk assessment will require it. This is just one more example of how to get your company ready to sell. If you (the owner) are a primary driver of revenue, your valuation will be negatively affected as the buyer perceives a risk in the sustainability of your revenue. Count on it. JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.