NarrowGate Consulting · one of four NarrowGate practices

What has to be true before a buyer ever sees it.

You may sell this business. You may use it to buy others. You may hand it to somebody in your family, or hold it another ten years and decide later. The work that makes any of those go well is the same work, and almost none of it happens at the closing table.

Find out what the business scores

29%

The number nobody quotes you

Being represented isn't the same as being ready.

Pepperdine's 2024 private capital markets survey asked investment bankers about the prior twelve months of sale engagements. Twenty-nine percent terminated without a transaction.

These are owners who hired a professional, ran a real process, and roughly three in ten still ended with nothing. The survey reports the rate. It doesn't report the reasons. Our view of the reasons, having watched deals come apart: the market is rarely the thing that kills them. Something in the business stops holding up once a buyer looks closely.

You can't control the market. You have a lot of control over the second part.

Source: Pepperdine Private Capital Markets Survey, 2024. 69 investment banker respondents. Applies to professionally advised engagements.

The instrument

The Business Valuation Playbook.

Valuation feels subjective from the inside. It isn't. A buyer runs a scorecard whether they show it to you or not, and in our experience it covers much the same ground each time. So we run ours first.

The Business Valuation Playbook is Brian Toelle's assessment of what a buyer would pay and why: five pillars, 21 value drivers, each scored one to six, 126 points in total. It measures one thing, and it measures it the way an acquirer would. The operating scorecard inside an Executive Services engagement is a different instrument, built per company against what that company is trying to accomplish.

We run it before you go anywhere near a buyer, so the first person to find your weak category is us and not them. A general sense that sales is fine and operations are messy becomes a specific list, ranked by what each one is costing you.

The five pillars

What a buyer is scoring.

Financial strength and scalability: Growth engine, profitability, revenue quality and predictability, cash flow and planning. Whether the earnings are real and whether they repeat. 24 points
Human capital and systems: Leadership depth and owner independence, workforce stability, culture and performance systems. Whether the company survives you. 24 points
Market position and relationships: Customer retention, customer and vendor concentration, competitive moat, industry timing. Whether the revenue is defensible or borrowed. 24 points
Operations and systems excellence: Whether the business runs on documented process or on memory and heroics, including proprietary methods, automation, and where AI helps or threatens your industry. 30 points
Business résumé and transition readiness: Whether a buyer can take this over. Documentation, data room, integration readiness, and a clean answer to every question diligence will ask. 24 points

What we're hunting for underneath the score is whatever a strategic buyer would find difficult to replicate. Proprietary methodology. Geographic position that's genuinely defensible. Licenses or certifications that function as a barrier. Supplier or distributor relationships nobody else has. Brand trust inside a narrow niche. Then we spend the engagement making those things visible and provable, because a value driver a buyer can't verify isn't a value driver. It's a story.

What diligence looks for

Know what they're going to find before they find it.

Quality of earnings. Normalized EBITDA and whether your addbacks survive an accountant whose job is to test every one of them. Seller's discretionary earnings, cleanly separated from the cars, the travel, and the conferences. Customer concentration. Whether management goes deeper than you. Whether the systems are documented or improvised. Working capital pegs. Escrow. Earnouts, and whether the ones on the table are achievable. Seller financing, and when it accelerates a deal that would otherwise stall.

None of this is exotic. All of it is where deals get retraded, and if you're seeing it for the first time while a buyer uses it against you, it's already too late to fix.

How a price moves after you sign

The letter of intent is not the number.

This is the part of a transaction almost nobody explains to a first-time seller, so here it is plainly. A signed LOI is a price and a set of assumptions. Diligence tests the assumptions. Every one that fails moves the price, and it moves in one direction.

You sign, and you go exclusive. A letter of intent typically takes the business off the market while diligence runs, and in our experience that's a matter of months rather than weeks. From that moment you have one buyer, and the position you held while several parties were interested is gone. That trade is normal and often correct. It's also the single most expensive signature in the process, and it's usually made before the seller understands what's about to be tested.

Then quality of earnings. An accounting firm rebuilds your EBITDA from the source documents. Addbacks you and your CPA considered obvious get questioned. Revenue recognized in a month a buyer thinks belongs in another month moves. Every dollar the analysis removes from EBITDA comes out of the price multiplied by the multiple, so a modest adjustment lands as a large number.

Then working capital. The buyer sets a peg, meaning the amount of working capital the business must have on hand at closing. If the peg is calculated off a period that flatters the buyer, or off an average that doesn't reflect how your business cycles, you fund the difference at close. Sellers routinely discover this in the final two weeks and it rarely gets called a price reduction, because technically it isn't one.

Then the structure moves. Money shifts out of cash at close and into an earnout, an escrow, or a holdback. The headline number can stay exactly the same while the amount you're certain to receive drops considerably.

None of this is a buyer behaving badly. It's an ordinary process working the way it works. What separates sellers who hold their number from sellers who don't is almost never toughness in the room. It's whether the answers were already true and already documented before anyone asked. That's the work we do, and we'd rather do it before you sign than argue about it after.

How a consulting engagement runs

Baseline, readiness, position, process.

If your house is in reasonable order and the question in front of you is the deal, this runs on its own. We establish a valuation baseline, assess readiness, position the business, and run the process. The endpoint is a closed transaction.

More often it runs alongside the inside work, and the ordering matters. The Consulting work that doesn't touch the market starts right away: valuation baseline, readiness assessment, target criteria, structure modeling. Buyer outreach, going to market, and negotiating an LOI wait until the inside work clears a readiness gate.

That isn't a preference. Going to market before the business can withstand diligence is how owners get retraded.

Exit track

For the owner who's selling.

We handle the deal side. Valuation and ongoing valuation tracking as the work changes the number. Market positioning. Assembling and managing the rest of the deal team, meaning the transaction attorney, the quality-of-earnings firm, and your tax advisor. Identifying and approaching buyers. Negotiating the letter of intent. Running diligence. Structuring the deal. Closing it.

We concentrate on businesses between $2 and $10 million in revenue, and we work outside that range when the fit is right.

Deal structure

The best deals aren't won across the table.

Brian's view, and it's shaped a lot of how we structure: a transaction where the buyer and seller are each trying to extract the most from the other tends to produce a deal that hurts somebody a couple of years later.

Performance-based structures change that. When part of the price depends on how the business does after closing, both sides stop negotiating against each other and start asking the same question. How do we make sure this thing runs as well or better five years from now?

That's also why owner financing comes up more often than sellers expect. BizBuySell's 2015 broker survey found 74 percent of brokers called seller financing essential or important to closing a deal, while 58 percent of owners agreed. Brian's position is more direct than either number. If you're not willing to finance any part of it, it's fair for a buyer to ask why. Nobody knows the durability of that revenue better than the person who built it.

That structure has a name. The Shared Success Plan is how we build it, and it keeps the seller invested in the outcome because the outcome is still partly theirs.

The Shared Success Plan

Four wins, or it isn't one.

Brian's deal structure, developed over more than twenty years of lower middle market transactions and run on live deals. Payments tied to revenue rather than bank debt, terms built around how the business actually cycles, and a seller who stays invested because the outcome is still partly theirs.

Buyer

Proven cash flow at a market multiple, without waiting on the SBA or other lenders to approve the close, and the platform upside that comes from integrating well.

Seller

Cash at closing plus pension-style income across the term, and the option to stay involved strategically, relationally, or not at all.

Employees

Jobs protected and culture preserved, because the person who built the place still has a stake in how it's run.

Clients

The trusted relationship continues. Nobody starts over.

To be clear about what that describes. The Shared Success Plan is a structure between a buyer and a seller. It is not how NarrowGate is paid. Our own engagement terms vary by the work and get settled with you before anything is committed.

Platform track

For the owner who's buying.

Some owners look at the same handoff and see the other side of it. Instead of selling into somebody's rollup, they build the platform that does the acquiring.

We define the acquisition criteria, source targets, value the tuck-ins, negotiate the LOIs, run diligence, execute, and support the capital structure that has to hold it all together.

The arithmetic is what makes it work. Our view of how buyers price things is that smaller companies tend to trade at lower multiples than the platforms that absorb them, so a well-integrated add-on can be worth more inside your business than it was outside it.

An illustration, not a promise. Acquire a company at roughly 3.5 times earnings, integrate it properly, and it carries the platform's multiple, call it 6. The spread is the return, and you created it by integrating rather than by negotiating. Real multiples move with your industry, the market, and the specific deal. Nobody can promise you a spread.

That's also the catch. The arbitrage only exists if the integration is real. A tuck-in that never gets absorbed is an expensive way to buy revenue.

The operational backbone that lets you absorb a company without breaking is substantial work. That's Executive Services, and the two tracks are designed to run together.

And the preparation doesn't care which way you go. The work that makes a business sellable is nearly the same work that makes it able to acquire. Clean financials. Leadership that doesn't depend on you. Documented systems. Predictable cash flow. So you don't have to decide today, and that optionality is itself enterprise value.

When we say no

We'll tell you if you're not ready.

If the assessment says the business can't withstand diligence yet, going to market is the wrong move and we'll say so. Running a process you're likely to lose costs you more than the fee. In our experience it burns through the buyers worth talking to, and it's hard to come back from within a year or two.

And there's an outcome nobody puts on a brochure. Some businesses don't sell. The owner shops it, the offers come back at something close to the value of the equipment, and the real choice becomes winding it down or letting it die quietly over a few more years. That happens to companies that were genuinely profitable, run by people who worked hard for decades. Where we've seen it, it traces back to the same place: everything the business knew, one person knew.

The work that changes that ending is operating work, not deal work, and it has a home inside NarrowGate.

See Executive Services

You don't have to know which destination yet.

Sell it, buy with it, hand it to your daughter, or hold it another decade. The scorecard reads the same, and so does most of the work.

What you can find out now is where the business actually stands, and what it would cost to move it. That's a conversation, not a commitment.

Talk to us

Start the conversation.

Tell us what the business looks like from where you sit. We'll tell you what we'd look at first.

What happens next. Brian or Robby reads it himself. The first thing that happens is a conversation, not a proposal.

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