Imagine a building products distributor, somewhere around 10 million in revenue, good margins, and an owner who had been thinking about exit for six years. Names withheld to protect the innocent. The numbers looked clean on the surface, but once diligence got inside the operation the picture changed. Every account over a certain size called the owner directly; the office forwarded the phones for those names without asking. He knew which vendor discounts were expiring and which lines carried the real money. He took the 6 a.m. calls from the big contractors because they trusted him, and he kept a paper file, actually paper, in a desk drawer tracking who pays slow, who's a friend, who needs a credit call before he'll talk at all.
None of that made the business weak. It meant the buyer's people couldn't be confident it kept running after closing, and their offer came back about a fifth below what the owner had in mind.
That haircut usually lands between 15 and 25 percent. Sometimes the buyer doesn't reduce the price; they defer part of it, paying more once you can show the customers stayed. Same concern, slower receipt.
This isn't a rare situation. According to U.S. Census Bureau data from the 2022 Annual Business Survey, 52.3 percent of business owners are 55 or older. A lot of owners are going to be sitting across from a buyer in the next few years.
What the diligence found
Most of the usual signals were there. Margin knowledge that lives in the owner's head instead of in rules the branch manager can run. Account relationships that attach to him personally. Pricing logic a diligence team could only reconstruct by sitting with him and asking questions.
Distributors carry one more signal that surprises owners, because it sits on the other end of the aisle. Manufacturer relationships. Two of his principal brands gave him allocation priority and rebate tiers that were effectively a handshake with the factory reps, built up over years, not terms in any signed agreement. The buyer had a fair question there: when the owner left, would those factories keep him in line, or quietly open the same account for the next distributor down the road?
The thirty-day test
A quick version of the self-check: assume you go unreachable for a month. In a distributor that means someone has to reroute truck loads, chase the factory on a backorder, and sit on the phone with a contractor who's about to walk. If the office stops working because your phone stops working, the buyer already knows that too.
The runway
The useful part is that most of this can be fixed, on a timeline that embarrasses people. Write the pricing rules down. Put your branch manager in front of the top accounts one lunch at a time; relationships transfer in person, not by email. Take the team to the factory meetings. Freight paperwork and quoting and most of the busywork can go to software or to whoever is good at it and doesn't need your call. The account and factory relationships don't compress, though, so one to three years ahead of a sale is the working runway. Ninety days out is why owners end up negotiating from weakness.
Most owners are already on that runway whether they've planned for it or not. The Exit Planning Institute found that 73 percent of privately held companies in the U.S. plan to transition within the next ten years.
And most haven't started. In the Exit Planning Institute's survey of more than 400 Colorado business owners, 95 percent said a transition strategy is important, yet 65 percent had no formal or written transition plan. I don't think that's because owners don't care. They're busy running the business, which is kind of the whole problem.
The scorecard
You may notice the piece ends with a link, the way blog posts do. I'd rather flag that than apologize. I built a five-minute exit readiness scorecard, fifteen questions across the five areas a buyer checks, and the answers stay in your browser. If it embarrasses you a little, that's it working.
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