Why buyers ask for a discount: 7 reasons
Value Up editorial team · · 5 min read
A discount in negotiations is almost always tied to a risk the buyer has found in the business. Knowing these reasons in advance lets you remove some of them before the first meeting.
1. The business depends on the owner
The buyer fears that customers and staff will leave with you. Written processes, a manager and handing over key relationships in advance help.
2. One customer brings most of the revenue
Losing that customer breaks the economics. A long contract with them and more customers elsewhere reduce the discount.
3. Unclear accounts
If profit cannot be confirmed by documents, the buyer counts it lower. Order in the books for the last 2–3 years pays off fastest.
4. A falling trend
A fall in revenue or margin is carried into the future by the buyer. Explain the cause and show that the trend has turned.
5. A short lease or a licence problem
Without the premises or the licence the business does not work. Extend the lease and keep the licence clean before the deal.
6. Dependence on key employees
If one specialist holds the quality, the buyer asks for guarantees that they will stay. Contracts and incentives help.
7. Doubtful add-backs to profit
Personal expenses and one-off costs that you added to profit without documents are struck out by the buyer. Add back only what you can confirm.
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For information only. This is not a licensed appraiser’s opinion and not legal or investment advice.