In my over three decades as a business broker I have been able to successfully sell the equipment, inventory, facility leases, real estate, brand, intellectual property, trade secrets, operational processes, customer & vendor relationships, and goodwill, plus successfully transition staff and have parties sign non solicitation and non competition agreements in over 300 transactions involving privately held companies and family businesses. My firm, IBA, has completed a successful sale process over 4400 times for our sell side clients. However, there is one asset of a business that has positively contributed to its historical performance that cannot be sold, it can be rented, but never secured for exclusive, perpetual future use by a future owner of a company.
The asset I am referencing is the executive management ability and business acumen of ownership. In the sale of a privately held company or family business one fact is always true, new ownership will be better or worse than exiting ownership, it will never be the same.
The importance of ownership to the execution of a business model will depend on the industry sector, the staff infrastructure in place, and their management style. A proper valuation process performed by a knowledgeable, experienced business sale intermediary will incorporate this information into the pricing of a company before bringing it to market. One reason some business brokers do not price a business and/or use an “auction model” is because they do not have the ability to address this element and want to avoid entering unfamiliar waters.
Most business buyers and sellers are familiar with the basic business valuation equation EBITDA times a multiple. Frequently, parties will come to IBA from both sides of the negotiating table saying “I believe a X multiple (Commonly 3 – 7 in IBA’s transaction world) is appropriate” for valuing a specific company. I often ask them, “what does a X multiple mean and how did you select that figure? “. A significant number of times the people who supplied the figure will not have an answer they can articulate comprehensively. As someone who welcomes the opportunity to share my knowledge and experience with entrepreneurs and people who are considering a business ownership career path, I will then explain that a multiple is a conveyance of the risk associated with a potential business and that IBA builds an appropriate multiple for a specific business utilizing six different components (https://ibainc.com/blog/gregory-kovsky/the-fundamentals-of-business-valuation-ebitda-times-a-multiple/) before bringing it to market. A four multiple means that the business acquisition has the risk associated with a 25% return on investment with upside appreciation potential. A five multiple is the purchase of an investment with a 20% projected investment return with upside appreciation potential. One of the elements that impacts the selection of the appropriate multiple for use in the valuation of a specific company is the risk associated with a change of ownership.
If IBA is selling a laundromat or a car wash (Transaction types IBA has successfully facilitated in 2025) the risk to the business operations from a transfer of ownership is low, contributing to a higher multiple. Customers generally do not care who owns/manages these two business models or a gas station and the management skill needed to supervise the staff and run the business is not something that requires a PHD. In comparison, consider an acupuncture clinic or construction company (Both types of companies IBA has represented in 2025) where the owner is the main practitioner and/or rainmaker. Replacing that individual is much more delicate, equating to a lower multiple, and something that likely will need to be facilitated strategically and over a longer period of time.
One of my least favorite personality traits is hubris. Unfortunately, frequently buyers enter the business opportunity marketplace with large egos and believe just because they have the capital to acquire a company they should be courted as potential successors. Unfortunately, having the money to purchase an 80’ yacht does not mean you have the ability to handle it on rough seas or moor it. The same is true with executively managing a privately held company or family business. Managing a $X million dollar budget at a technology company, does not mean you have the knowledge, experience, and ability to make decisions in real time with budget constraints successfully with no senior management and/or capital resources to back you up if you fail. In addition, graduating from an elite college with a MBA and having financial backers does not mean academic success and doing something theoretically will translate successfully into real world entrepreneurial achievement. Microsoft bought Nokia and shut it down shortly thereafter writing off $7.6 billion (https://www.theguardian.com/technology/2015/jul/08/windows-phone-microsoft-nokia-layoff-smartphones). This failure given the talent in place at Microsoft to run the new division, the company’s financial resources, and the army deployed legally and for due diligence should serve as a cautionary tale to anyone buying a company. If Microsoft could fail at that level, failure at any level below it is a possibility.
Acknowledging the risk associated with buying a business and seeking the associated reward, what should be done to mitigate risk and ensure a smooth handoff of executive leadership of a privately held company.
- Recognize that selling ownership has likely seen most things that impact the operation and profitability of the business and is a valuable resource. Treat them with respect and they will likely share everything they know willingly.
- Listen to what is shared, take notes, and ask questions. All exiting owners seek a smooth transition of ownership. The value received for the company was an important consideration in their reaching agreement, but they are also commonly concerned about the well being of their employees, customers, and vendors post sale. They have likely agreed to mentor their successor in ownership, not do labor for the buyer’s benefit, and not to train on the same issue numerous times.
- Assess their role at the business from dawn to dusk and in winter, spring, summer, and fall. Identify responsibilities that are daily, weekly, monthly, quarterly, and annually. Most entrepreneurs wear numerous hats or have trained people to fill roles they have perfected. Common pots that ownership has their fingers in include marketing/advertising, customer retention, product quality, customer service, purchasing, budgeting, technology, intellectual property, and capital asset acquisition/maintenance, strategic planning, personnel, human resources, and corporate culture.
- Recognize your ownership team’s strengths and weaknesses. Assign who is responsible for each area of knowledge transition. There is a reason relevant knowledge, appropriately, is an underwriting requirement for SBA loans. Preexisting knowledge & experience can assist with earning ownership’s respect, facilitating a smooth transfer process, and help with identifying opportunities for growth and improvement of the business model. Many past IBA clients have experienced great joy in seeing their successors in ownership take their companies to a higher plateau of achievement.
- Negotiate an appropriate transition/training period. Contractually make the seller accountable for supporting the transfer. Build in periods for in person and virtual engagement out into the horizon. All secured vehicles for future support do not need to be utilized.
A successful transfer of ownership and executive leadership of a privately held company or family business can be facilitated. Involving one company, I have facilitated the transfer four times. The first time was a retirement sale, the second was due to a car accident involving the owner, the third was to a party who left the corporate world to fulfill a dream of being an entrepreneur who after improving the company decided they liked the Fortune 500 world better, and the fourth was an industry merger. The company successfully transitioned all four times and each time the seller and buyer were satisfied with the outcome. Business ownership offers professional fulfilment and financial prosperity opportunities not found working for someone else. It should never be forgotten that when you work for someone else versus being the owner, that someone is making a profit off your labor or delegating a task they do not want to do themselves or they would not be paying your salary. Consensus in the marketplace is that the risk associated with buying a business is justified. The question that cannot be answered at closing, is does a business buyer have the ability to successfully run the company they are purchasing. Only time will tell the answer to that question. I have seen Harvard MBA’s back manage excellent companies to death and first generation immigrants with no formal education achieve the American Dream as entrepreneurs and become financially strong pillars of their communities.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.