Is Your Valuation Being Destroyed by These 5 Risks?
Posted by Christine
11 February 2026
Business valuation is made up of a number of issues. Last week, you calculated your normalised EBITDA.
Let’s say you landed at £850,000.
You research sector multiples and see 4-5x for businesses like yours.
You think: “My business is worth £3.4-4.25 million.”
Then a buyer values it at £2.8 million.
What happened?
Risk adjustments. Buyers identified factors that reduce the multiple they’ll pay.
This week, you’re going to assess your business for the five risks buyers care about most—and quantify exactly how much each one costs you.
Class VI Partners analysed hundreds of middle-market businesses and surveyed both companies and buyers about concerns during due diligence.
They found five risks appear most frequently:
Notice: four of the five relate to how well your business operates without you.
According to Calder Capital’s research on owner dependence and valuation:
“Both academic and non-academic research regarding mergers and acquisitions of small businesses demonstrate that owner dependence is one of the more important factors in valuation and marketability of these businesses.”
Let’s assess each risk and quantify the impact.
The Question: “If you disappeared tomorrow, what percentage of revenue would be at risk?”
Be honest. Not “the team would figure it out eventually.” What would actually happen in the first 90 days?
Assessment Framework:
Rate yourself on five dimensions (1-10 scale):
Customer Relationships (1-10):
Operational Decisions (1-10):
Technical Knowledge (1-10):
Supplier Relationships (1-10):
Crisis Management (1-10):
Your Score: Add the five scores
Multiple Impact:
Research shows owner dependency can reduce EBITDA multiples by 1-2x.
Example:
Your score: 22 points (moderate dependency)
Base sector multiple: 5x Owner dependency discount: -1.0x Adjusted multiple: 4x
On £850k EBITDA:
Value lost to owner dependency: £850,000
The Question: “What percentage of revenue comes from your top three customers?”
This one’s simple maths.
Last year’s revenue: £3.2 million
Top three customers:
Total from top 3: £1,568,000 (49%)
Risk Assessment:
Multiple Impact:
Your Example:
Top 3 = 49% (concerning)
Discount: -0.8x multiple
On £850k EBITDA at 5x base:
Value lost to customer concentration: £680,000
The Question: “If a new person joined, could they understand how things work from documentation alone?”
According to PCE Companies’ research:
“Every function—sales, operations, finance, customer service, and so on—should have clearly documented processes. These don’t need to be elaborate playbooks at first; simple written procedures, templates, checklists, and training guides go a long way.”
Assessment Framework:
For each critical function, rate documentation quality (1-10):
Sales Process:
Operations/Delivery:
Customer Service:
Financial Management:
Quality Control:
Your Score: Average the five ratings
Multiple Impact:
Example:
Your average: 5.2 (adequate)
Discount: -0.3x multiple
On £850k EBITDA:
The Question: “Could the business operate for 90 days without you?”
Be specific. Not “they’d probably be fine.” What would actually happen?
Assessment Framework:
Evaluate your management team:
Second-in-Command:
Finance Leadership:
Operations Leadership:
Sales Leadership:
Add up the discounts for missing roles.
Example:
Your situation:
Total discount: -1.1x multiple
On £850k EBITDA:
The Question: “Could a buyer understand your financial performance from your reports?”
Buyers expect:
Assessment:
Example:
Your situation: Monthly P&L, basic cash tracking, no detailed analytics
Discount: -0.3x multiple
On £850k EBITDA:
Here’s the critical insight: these risks compound.
Your business:
Risk adjustments:
Total risk discount: -3.5x
Adjusted multiple: 1.5x
Adjusted value: £1,275,000
Value destroyed by risk: £2,975,000
Same EBITDA. Nearly £3 million less value because of risk factors.
This week, complete your risk assessment.
Monday (2 hours): Complete owner dependency self-assessment. Be brutally honest on the five dimensions.
Tuesday (1 hour): Calculate customer concentration. Top 3, top 5, top 10. What percentage of revenue?
Wednesday (3 hours): Audit systems documentation. Rate each critical function. Identify gaps.
Thursday (2 hours): Assess management team. Who could step into leadership? What gaps exist?
Friday (1 hour): Review financial reporting. What do you have? What’s missing?
Weekend: Calculate total risk discount. Apply to your EBITDA from Week 1. Calculate your risk-adjusted value.
By next Wednesday, you’ll have:
Next week, we’ll cover the “C”—Comparison to sector benchmarks, which determines your base multiple before risk adjustments.
Then Week 4, we’ll combine everything into your complete valuation range.
But this week’s work is critical. You’re identifying exactly where value is being destroyed.
Block the time. Complete the assessment. Know your risks.
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