The part of a small business that does not transfer
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When a small or medium-sized enterprise (SME) changes hands, the negotiation looks like it is about the numbers. Turnover, margin, recurring contracts, the quality of the customer list. In practice most of the arguing happens somewhere less tidy, over how much of that revenue is still there a year after the founder has gone.
Buyers have a blunt way of thinking about this. They are not buying last year’s profit. They are buying next year’s, and in an owner-managed business the owner is usually the largest single risk to it.
Where the revenue actually comes from
Ask most owner-managed firms where their customers come from and the honest answer is referrals, repeat business and the founder’s own network. That is not a criticism. It is how nearly every service business reaches its first few million pounds of turnover, and it works because the founder is genuinely good at it.
The trouble is what it looks like from the other side of the table. A pipeline made of one person’s relationships is a pipeline that leaves at completion. Buyers know this, which is why so much of the price ends up in an earn-out and why the multiple gets discounted before anyone has opened a spreadsheet.
The businesses that hold their valuation usually have something duller in the mix. Demand that arrives without the founder touching it: customers who found them through a search, through an industry comparison piece, through being the name that comes up when a buyer asks a peer which firms are worth a conversation. Far less impressive than a brilliant founder. Also transferable, which is the only quality the buyer is really pricing.
Managed IT shows it clearly
UK managed IT is a useful place to watch this happen, because the sector is consolidating and there are now enough comparable deals to see the pattern rather than guess at it.
Managed service providers (MSPs) look close to interchangeable on paper. Recurring contracts, similar client counts, similar earnings before interest, tax, depreciation and amortisation (EBITDA). Yet the spread in what they sell for is wide, and a good part of that gap comes down to one question: does new business arrive because the owner knows people, or because the company is findable?
Two providers with almost identical accounts can be several turns of EBITDA apart. The one that gets found is worth more, and it is worth more for a reason a buyer can defend to an investment committee.
Owners close that gap one of two ways. Some build the capability internally, which is slow and does work. Others buy it in, which is the only reason a market of lead generation and search specialists working solely with managed service providers exists at all. A buyer does not care which route was taken. What a buyer cares about is the evidence that enquiries arrive without the vendor making every introduction.
Why so few owners fix it
Because it fails the first-quarter test.
Hire a salesperson and something happens within weeks, even if it is the wrong something. Start publishing properly and for three months almost nothing happens at all. Most owners read that silence as failure and go back to buying leads, which is the option that produces a number this month and nothing that lasts.
The ones who keep going tend to get a strange result somewhere around month six or seven. Enquiries start arriving from people who already know what the business does, already think it is credible, and want to talk about scope rather than price. Those enquiries cost nothing extra. They keep coming whether or not anyone did anything that month.
If a sale is three years out
Then this is a finance decision rather than a marketing one, and it wants treating as such.
Ask the last ten customers what they searched for and read before they made contact. Most owners have never asked, and the answers are usually specific and unglamorous. Answer those questions properly and in public, with enough detail to be useful rather than enough to be safe. Get named in the comparison pieces and industry roundups that buyers in the sector actually read. Put checkable facts on the website instead of adjectives.
None of it is quick and none of it is clever. It just happens to be the part of a business that survives the handshake, and a buyer will pay for it in multiple rather than in goodwill.
About the author
Alexej Pikovsky is a serial entrepreneur who spent around a decade in investment banking and private equity before founding the growth agency NUOPTIMA in 2020. He now runs a portfolio of businesses from Lisbon.