Preparing to sell your Business? Avoid these mistakes
Are you leaving money on the table?
How One Owner Lost Millions on a Sale (And How You Can Avoid the Same Mistakes)
Early last year, I represented a buyer in the acquisition of an engineering maintenance business. The deal ended up being a bargain for the buyer—we secured the company at a 2.5x earnings multiple in a sector where businesses typically sell for 5-7x earnings.
The company was historically very profitable, generating around $1.3 million CAD per year on $5.5 million in revenue. So why did the seller walk away with far less than they could have?
Because of five avoidable mistakes that made the business look far riskier than it actually was. Here’s what happened—and what you can learn from it.
The Five Mistakes That Cost the Seller Millions
1. High Customer Concentration
75% of revenue came from a single client—and worse, their exclusive contract only had 12 months left. From a buyer’s perspective, this meant we were essentially purchasing a business with an uncertain future.
What the seller should have done: High customer concentration is a common challenge for small businesses, and there’s no quick fix—if acquiring more clients were easy, every business would do it. However in this instance, the seller should have proactively sought an early contract renewal before putting the business up for sale. Even a three-year extension would have reassured buyers and boosted valuation.
2. No Operational Systems—Just Chaos
Everything—invoicing, billable hours, tracking—was in Microsoft Excel. Nothing was integrated. Worse still, much of the critical financial tracking was stored only in the seller’s head. This meant the buyer would have to spend months deciphering operations before taking full control.
What the seller should have done: A basic database or CRM to track jobs, billable hours, and invoicing would have instantly increased buyer confidence.
3. No Clarity on Profitability by Customer or Project
During due diligence, it became clear that the seller didn’t know which jobs, sites, or customers were the most profitable. Gross margins varied significantly between customers, but without proper tracking, we had no way of knowing where the real value was.
What the seller should have done: Implemented a simple job costing system to track profitability per customer, project, or site. Without this, buyers had to assume the worst.
4. The Business Was Overly Dependent on the Owner
The seller worked 80-100 hours a week, handling multiple critical roles. There was no clear path for a transition because it was unclear who—if anyone—could replace them. As a result, we had to assume a worst-case scenario, assuming multiple hires were needed.
What the seller should have done: Even if it’s not possible to bring in extra help, it pays to track exactly where you’re spending your time so potential buyers can easily ascertain where the pinch points are. In reality, all we needed was one subject matter expert and one administrator, but the lack of clarity lowered the valuation as we had to assume the worst.
5. No Standard Operating Procedures (SOPs)
The company had no documented processes—everything was in the owner’s head. This meant the handover period had to be much longer, requiring a higher transition cost, which further reduced the valuation.
What the seller should have done: Created written SOPs for core business functions. This would have allowed for a faster and smoother transition.
What These Mistakes Cost the Seller
Because of these five issues, the business sold for 2.5x earnings instead of 5-7x—a significant loss in value.
Had the seller fixed even three of these issues, they likely could have achieved 3-3.5x earnings—a much stronger outcome that could have meant millions more in their pocket.
The Quick Wins That Buyers Love
If you’re thinking of selling your business, take these three simple steps to maximize value before listing:
Document Your Processes – Having SOPs in place makes your business more transferable and less risky.
Track Profitability by Customer & Project – Knowing which clients and jobs make the most money gives buyers confidence.
Use a CRM or Database – A simple system to track financials and operations speeds up due diligence and boosts trust.
These are quick fixes that can make a huge difference in your business valuation.
Final Thought: Are You Making These Same Mistakes?
Selling a business isn’t just about finding a buyer—it’s about making your business easy to buy.
If you’re planning to sell, take the time to fix these operational weaknesses now. It could mean the difference between a lowball offer and a payday you’re happy with.
Need help getting your business ready to sell? Let’s talk.