Owner Dependency Discount
The price cut buyers apply when the business depends too much on you — usually 20%–40% off the multiple.
The owner dependency discount is the reduction buyers apply to your purchase price when they conclude the business won't run cleanly without you. It typically shows up as a lower multiple (3x earnings instead of 4x), a longer required transition period (12 months instead of 3), a larger earnout component (more of the price contingent on the business performing post-close), or some combination of all three. The size of the discount scales with how dependent the business is. A business where the owner is moderately involved gets a 10%–20% discount. A business where the owner is the business — every customer relationship, every key decision, every operational detail — gets a 30%–50% discount, and sometimes can't be sold to institutional buyers at all.
The discount shows up as a lower multiple, a longer required transition period, a larger earnout component, or some combination of all three.
Buyers don't apply the discount to be punitive — they apply it because every dollar of earnings tied to the owner is a dollar at risk the day the owner leaves.
Find out what a buyer would see in your business — before you talk to one.
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