The Founders Mindset · Post M.6
View the full series →Think Like a Buyer
Your buyer isn't looking for reasons to pay more. They're looking for reasons to pay less.
Every PE buyer walks into a first meeting with a blank spreadsheet.
By the end of diligence, that spreadsheet has a number at the bottom — the price they're willing to pay. Every row above it is a reason the number got smaller.
Call it The Deduction List. Customer concentration. Founder dependency. A key hire with no non-compete. A lawsuit nobody mentioned. A forecast built on hope. Each one is a line item. Each line item is worth real money.
You've never seen that document. They've built hundreds of them.
The Walk-Around, Revisited
Remember Billy Bob from the kickoff post — the hands-behind-the-back, timing-belt-question routine that ends with fourteen reasons your trade-in should be worth less? A PE diligence team runs the same play. Better suits. A 60-to-90-day timeline. A spreadsheet instead of a notepad. Same game.
You've spent 20 years building the business. You've never once walked around it the way they will.
That's the job of this post. To teach you to walk the business the way Billy Bob walks the car — before Billy Bob shows up.
The Three Things Buyers Are Actually Buying
Before you can see the business the way a buyer sees it, you have to know what they're looking for. Not the feature list. Not the growth story. Three specific things.
Consistency. Does this business do the same thing, the same way, every month, every year? Consistent revenue. Consistent margins. Consistent customer retention. The buyer isn't looking for a great quarter. They're looking for the absence of bad ones.
Predictability. Can I forecast what this business does next year based on what it did last year? A business with contracted recurring revenue is predictable. A business that depends on the founder winning three new logos every year is not.
No surprises. When diligence is done, is there anything left to find? A lawsuit nobody mentioned. A customer on the verge of leaving. A tax issue the CPA never resolved. Every surprise is a reason to lower the offer, or kill the deal entirely.
That's the entire framework. Consistency, predictability, no surprises.
The Deduction List: What Buyers Are Really Cataloging
| What you say | What they write down | The deduction |
|---|---|---|
| "We have a great relationship with our top customer." | Customer concentration. Is the relationship with the company or the founder? | 0.5–1.0x multiple reduction |
| "Revenue is up 22% year over year." | Is the growth organic or pricing? What were the prior three years? | Normalized multiple applied to average, not peak |
| "Our team has been with us for 15 years." | Key-person risk. Are there non-competes? What happens if they leave post-close? | Retention bonuses deducted from purchase price |
| "We don't have formal contracts — we work on handshakes." | No contractual revenue. Customer portability on sale. | Recurring revenue discount of 20–40% |
| "I'm involved in every major decision." | Owner dependency. Revenue walks when you walk. | 1.0–2.0x multiple reduction |
The seller talks about strengths. The buyer decodes each strength into a risk. Every strength has a shadow, and the shadow is where the deduction lives.
Run Your Own Deduction List
Before any buyer ever sees your business, you run your own Deduction List. You walk around the car yourself — 12 to 24 months before you plan to go to market, with a buyer's eyes instead of your own.
Start with the six areas buyers always scrutinize.
Commercial. Is your market position defensible? Is revenue durable — contracted, recurring, or demonstrably sticky? Is your customer base diversified, or does one account make or break the year? A buyer's commercial team is looking for reasons the revenue won't be there in three years.
Legal. Who owns the company? Are the cap table and corporate records clean? Are customer contracts assignable? Are employment agreements in place? Any pending or threatened litigation?
Finance. Are the last five years of financials consistent and reconciled? Is EBITDA normalized with documented adjustments? Is there a credible forecast that ties to a bottom-up model, not wishful thinking?
Human Capital. Does the business run without you? Do key employees have non-competes and employment agreements? Is there a second-level leadership team that a buyer can meet?
Sales & Marketing. Is new customer acquisition repeatable and documented, or does it depend on you? Is there a pipeline the buyer can see and verify? Is the brand defensible?
IT Systems. Are the systems scalable? Is the data clean? Is there a disaster recovery plan? Is security documented?
Every weakness you find in these six areas is a deduction on the Deduction List. Every one you fix before the buyer shows up is a deduction you remove from their spreadsheet.
The goal isn't to hide the Deduction List. Buyers find everything eventually. The goal is to shorten it. Every weakness you eliminate is a deduction that was never taken. Every risk you document and price yourself is a risk the buyer can't price for you.
The best compliment a buyer can pay your business in diligence isn't "wow." It's "there's nothing here."
Because if there's nothing for Billy Bob to shake his head at, he stops looking for reasons to lower the offer. And that's the only way you actually get paid what the business is worth.
Notes
This post is part of the Transition Operators series on preparing founders for a successful exit.