Learning From Conversations
Maria (Owner): Thanks for coming in. I know you’ve both reviewed the numbers, so I’m happy to address the points you flagged. The company’s stable, profitable, and we’ve built this over 22 years. We’re over 200 employees now, and the operation has strong systems in place.
James (Buyer 1): The business is impressive. The margins are strong, and the retention on both customers and staff stood out. But we need to talk about concentration risk. Your top two customers represent about 45% of annual revenue. That’s a meaningful dependency from an acquisition standpoint.
Maria: It’s true. Two customers make up 45%, but they’ve each been with us over a decade. One for 16 years, the other 11. Contracts renew consistently, and our service levels are one reason they stay. That kind of loyalty isn’t easy to replicate.
Daniel (Buyer 2): Longevity helps, but concentration still affects valuation. We have to underwrite the downside. If one customer shifts vendors or consolidates supply chains, the revenue impact is immediate. That kind of exposure pushes risk higher than a more diversified book.
Maria: I understand that. But you’re also looking at a business with extremely predictable orders. Food manufacturing isn’t a speculative market for us. These are recurring accounts, and the customer relationships are institutional, not personality-driven.
James: Understood. The second issue is capacity. You’re running at roughly 95%, correct?
Maria: Yes, depending on the quarter. We’ve optimized the floor as much as we can. We can squeeze some scheduling efficiency and minor throughput gains, but not a major increase.
Daniel: That means the next phase of growth requires capital expenditure. Probably a facility expansion or a second site.
Maria: A second site would likely be the long-term answer. Expanding here is difficult. The building already occupies nearly the full footprint of the parcel. There’s some flexibility for minor additions, but not enough for meaningful production scale.
James: That’s the concern. We’re not just buying cash flow; we’re buying future return. If the company is nearly maxed out physically, then growth requires us to deploy more capital immediately. That changes our model.
Maria: But you’re also acquiring a very strong platform. The workforce is exceptional. Most of our supervisors have been here 10+ years. Turnover is low. Training is strong. In this industry, operational consistency and labor reliability are major assets.
Daniel: We agree. Your team is one of the strongest parts of the business. It lowers transition risk considerably. We also like that customer retention is so deep. That has real value.
James: Still, our investment criteria targets a 30% annual return. To achieve that, we have to factor in the concentration risk and the limited organic expansion. The purchase price has to reflect those constraints.
Maria: What kind of adjustment are you talking about?
James: Based on our model, we’d discount compared to a similar company with diversified customers and room to expand on-site. The business quality is high, but the risk profile narrows our acceptable entry point.
Maria: You’re discounting for future risks, but the existing earnings are proven. This company generates strong cash flow now. You’re not buying a turnaround.
Daniel: Absolutely. But from our side, if we’re paying full market multiple and then also funding a relocation or second plant within a few years, our ROI falls below threshold. We have to build in that expected capital cost up front.
Maria: So in your view, you’re valuing the current operation but subtracting for the expansion investment you anticipate making.
James: Exactly. If the business had 20% idle capacity and land to double the footprint, that’s a different valuation. Here, expansion is possible, but it requires a larger strategic decision and more capital.
Maria: I can appreciate that. But I would also argue you’re buying something hard to build: a loyal workforce, long-standing customers, and a proven operating culture. That reduces execution risk significantly.
Daniel: It does, and that’s why we’re still very interested. We’re not questioning the strength of what you’ve built. We’re just saying the structure of the revenue and physical limits mean our offer will need to reflect a more conservative entry multiple.
Maria: I’m open to discussing structure if price is your issue. Earn-outs tied to customer retention or expansion milestones might bridge some of that gap.
James: That could help. If customer concentration remains stable and revenue expands after capex, there may be a way to align valuation expectations.
Daniel: That’s worth exploring. We see a strong company here. We just need a deal that meets our return requirements while accounting for the risks we’d be taking on.
Maria: Fair enough. Then let’s work through a structure that recognizes both: the risks you’re pricing and the strength that already exists.
Fade Out
Sellers and Buyers Often View Deals Differently
A common dynamic in selling a business is how differently sellers and buyers talk about value depending on which side of the table they’re sitting on.
Sellers often present their company through the lens of blue-sky potential, emphasizing untapped growth, expansion opportunities, and all the upside that a new owner could unlock. At the same time, many sellers will say, quite reasonably, that a buyer should not expect to pay today for profits that may or may not happen tomorrow.
Yet buyers often reverse that logic. They may not want to pay full value for what the company is earning today because they see red-sky concerns about tomorrow, customer concentration, facility limitations, industry changes, or future capital needs. It’s a convenient shift in perspective, and many sellers accept that reasoning without fully examining it.
The reality is simpler: the seller has to determine what price reflects the years of blood, sweat, and sacrifice it took to build the company. The buyer has to decide what price makes more sense than acquiring a comparable company elsewhere or building one from scratch. Somewhere between those positions lies a deal, if both sides can reach it.
Negotiation is ultimately a dance. Each side studies the strengths and weaknesses of the other to find leverage and structure a transaction that works. It’s about understanding the other party’s motivations well enough to advance your own, while not giving away concessions unnecessarily. And those concessions are not always about price, structure, terms, timing, earn-outs, retention agreements, and transition support can all carry significant value.
One of the strongest positions a seller can take is to understand the buyer’s motivations. Seeing through the buyer’s lens can reveal where your leverage truly lies.
For example, if you know a buyer is strategically eager to enter your industry or geographic market, and your company is one of only a few viable acquisition targets, that gives you room to push harder. Price may be one lever, but so may terms, rollover equity, or reduced post-closing obligations.
On the other hand, if the buyer senses you have done little to understand the market, the buyer pool, or acquisition alternatives, they may use that gap in knowledge to frame the business as worth less than it truly is, and offer accordingly.
A lack of understanding on either side can lead to significant consequences: lower pricing, unfavorable concessions, or a complete collapse of negotiations. Sometimes deals fall apart not over major issues, but because one party clings too tightly to something the other sees as unreasonable. That can slowly push the other side away from the table.
From my experience, owners usually begin valuing their company based on two personal factors. First, they think about what it cost them, emotionally and financially, to build it. Second, they think about what sale proceeds would enable in the next chapter of life: retirement, another investment, security, or freedom.
Buyers often approach value very differently. Their framework is usually based on return on investment, scalability, strategic fit, and future exit potential. Some buyers are motivated by lifestyle or emotional attachment, but increasingly, especially with private equity groups and family offices, valuation starts and ends with ROI.
That buyer framework can produce values 20–50% below what an owner believes the business is worth. But the truth is that a company is only worth what a willing buyer and seller agree upon.
That principle is no different than the stock market. A company’s shares may trade at $75 yesterday and $167 today. The underlying company may not have changed at all. The only thing that changed is the collective agreement between buyers and sellers about what those shares are worth at that moment.
Buyers also operate under constraints, financing terms, interest rates, lender requirements, access to capital, but those are rarely disclosed openly. A buyer doesn’t sit across from a seller and say, “I can only afford this amount, so please accept it.” Instead, they try to persuade the seller that the business is worth that amount. And if they cannot, they move on to another opportunity that fits their budget.
That’s why preparation matters so much.
If a seller doesn’t take the time to understand their own strengths, weaknesses, alternatives, and leverage before entering the process, they are often at a disadvantage against buyers who may have negotiated dozens of transactions.
Professional athletes understand this. They spend months, sometimes years, preparing for competition. They study opponents, train for scenarios, and develop strategy long before stepping into the arena.
Selling a business may be the largest financial event of an owner’s life.
So why would anyone step into that ring unprepared or hire the coach two weeks before the match?
Thank you for reading. If you have a moment, I’d appreciate it if you could, like, subscribe, and leave a comment.
Austec Pre-Diligence Risk Exposure System