Selling your business: how buyers price key person dependency

How buyers price it

A buyer is paying for future cash flow. If that cash flow depends on specific people staying, especially the owner, the buyer is buying risk along with the business, and they price it in one way or another.

The usual levers are a lower multiple, more of the price held back as an earnout tied to future results, a longer transition period with the owner staying on, or retention bonuses for key staff paid out of the deal. None of these is bad in itself. But each one moves risk, and money, from the buyer back to the seller.

What due diligence looks for

Diligence on people is less about the org chart and more about questions like these.

• Which customers would leave if the owner left, and who holds those relationships day to day?
• Which processes can only one person run, and what happens when that person takes a vacation?
• Who are the admins on the core systems, and are the accounts in the company's name or a person's?
• Are vendor contracts, domains, and bank access tied to one individual?
• Is any of this written down, and does it match what the buyer hears when they talk to staff?
• Buyers also notice when the owner answers every question in management meetings. That is itself a data point.

Fixing it 12 months out

A year is enough time to move most seats from one name to two, and to show that the change held. The owner's row matters most to a buyer and usually takes longest, so start it first.

• Months 1-2: build the seat table and find every single-name row.
• Months 3-6: assign backups, add second admins and second owners, and move accounts registered to personal addresses into ones the company controls.
• Months 6-9: have backups run the processes for real, including a stretch where the owner is genuinely away.
• Months 9-12: introduce second contacts to top customers and vendors, then re-run the table to show the change.

The seat table buyers like

Buyers like a document that answers their questions before they ask. A seat table does that: one row per role, with what only this person does, who else can do it, the named backup, and the date it was last verified.

The date column is what makes it credible. A table verified last month, drawn from the same systems the buyer's advisors will inspect, reads as a well-run business. A table typed from memory the week before the data room opens reads as a pitch. Keep the before and after versions. Showing the single-name rows shrinking over a year is a story any buyer understands.