The Business Was Worth More Three Years Ago

We have had this conversation more times than we can count. An owner is finally ready to sell, but the business they are bringing to market is no longer the business buyers would have paid a premium for three years earlier.

The business has been good to them. They have built something real. But when we dig into the financials, the picture is softer than it used to be. Revenue has plateaued. Cost of goods sold has crept up without the seller raising prices proportionate to the COGS increases, silently eating away at profits. A couple of key people have left. The owner pulled back on reinvestment because, understandably, they did not want to spend money building something they were planning to hand off. Perhaps the owner took too many personal tax deductions to reduce their tax obligations.

The business is still sellable. But it would have been worth more, often significantly more, when it still had momentum. And by the time most owners realize that, the window to make changes now just got exponentially longer.

Most exits are not planned, they are triggered

Business owners like to believe they will choose the right moment to sell. In practice, many transactions are set in motion by something that was not part of the plan: a health scare with the seller, a partnership fracture, a key customer lost, a divorce or family member becoming ill.

Retirement can create its own version of this trap. The business has been generating strong income for years, so the owner keeps running it, not willing to envision themselves in retirement. But their engagement in the business quietly starts to fade. They stop taking on new opportunities. They skip the trade shows. They delay hiring. They slack off on growing sales. They let the strategic plan sit in a drawer.

None of this shows up immediately on a tax return. But it shows up in lost momentum, and sophisticated buyers, along with their lenders, are very good at spotting the difference between a business that is still growing and one that is being held together.

What waiting actually costs you

The decline rarely happens in a single bad year. It happens in layers. A sales hire gets delayed. A systems upgrade gets deferred. A competitor starts winning business you are no longer fighting for. Key employees sense the drift and start taking calls from recruiters.

Often the biggest missed investment is not equipment or marketing. It is management depth. Owners who wait too long often discover they are still holding too many of the important customer, supplier, and employee relationships themselves. That owner dependence becomes a risk buyers can see, and price accordingly. Our exit readiness assessment scores exactly this.

By the time the historical financials start showing the damage, buyers may already be discounting your asking price. In some sectors, a business that might have attracted a 4x-5x multiple on its earnings during a period of consistent growth would be re-priced lower once revenue stagnates, customer concentration tightens, or the owner appears disengaged. On a $5 million business, that gap is not rounding error.

There is also a less obvious cost: a declining trajectory limits your buyer pool. Institutional buyers and PE-backed acquirers are generally not looking for turnaround situations in the lower-middle market. Declining momentum often leaves you negotiating with a smaller group of buyers, which is exactly the wrong position to be in when you finally decide to sell.

Selling from strength is not about being in a rush

The advice we give owners is not “sell now.” It is “start thinking seriously about this before you assume you have to.” Those are very different things.

A business selling from a position of strength, growing revenue, high retention, clean books, and a management team that does not depend entirely on the owner, commands a premium. It attracts more buyers, creates more buyer competition and typically closes faster with fewer conditions.

The owner has leverage because they do not need to sell. They are choosing to. That leverage starts to disappear the moment the business shows softness. Buyers sense when an owner is tired, when reinvestment has slowed, and when the next chapter is overdue.

What early planning actually looks like

For most owners, “early” means two to four years before a likely transaction. Not because the sale itself takes that long, although preparation does matter, but because that is when the decisions that shape value are still in front of you. Additionally, many banks look at the business financial performance over the last three years.

Early planning helps you understand:

• What your business is actually worth in today’s market, not what you hope it is worth
• Which value drivers matter most to the buyers likely to acquire a business like yours
• What gaps in your financial reporting, ownership structure, or operations may surface in due diligence
• Where the business is too dependent on you personally
• What investments could still improve value before going to market
• How different deal structures may affect tax, risk, and net proceeds

None of this commits you to selling. It gives you a clearer picture of your options, and enough time to act on them intelligently rather than reactively.

The best time to have this conversation is before you think you need it

If you have started thinking about what life looks like after the business, even as a distant question, that is the right time to get a realistic read on where you stand. Not because the answer will force your hand, but because knowing changes what is possible.

Owners who engage early have options. They can strengthen the management team, clean up the financials, reduce customer concentration, improve systems, and make deliberate decisions about timing. Owners who wait until circumstances decide for them are usually negotiating from the wrong side of the table.

Mark Herrmann is the founder of Trustmark Mergers & Acquisitions in Charlotte, North Carolina. This article is general information, not legal, tax, or financial advice.