Identifying Value Leaks in Your Business
Most lost enterprise value isn’t stolen. It quietly leaks away.
You have been building a profitable company for years. Revenue is steady, margins look fine on paper, and you’re confident the business will fetch a premium when it’s time to sell.
But then a buyer steps in, combs through the details, and suddenly your $10 million valuation turns into $6.8 million. The buyer isn’t being unfair. They’ve simply spotted what you’ve overlooked: value leaks.
These leaks aren’t dramatic like fraud or catastrophic losses. They’re subtle, quiet drains that erode transferable value. And most business owners don’t notice them until it’s too late: when they’re sitting across from a buyer who has done their homework.
The sting is real. I’ve spoken with owners who built companies over 20 years, only to discover in diligence that sloppy vendor contracts, undocumented processes, or customer concentration issues knocked millions off their sale price. It’s a gut punch, because none of these problems showed up in the day-to-day. They only surfaced under the microscope of exit preparation.
The hard truth: value leaks aren’t about what you see. They’re about what you don’t see. They live in the blind spots that feel comfortable because “things have always worked that way.”
The intriguing part is that fixing leaks isn’t rocket science. In fact, the changes are often straightforward and low-cost. Owners have transformed their multiples simply by formalizing contracts, documenting SOPs, or diversifying their customer base. One owner I spoke with went from a 3.5x to a 5x multiple just by systematizing their recurring revenue streams and locking in supplier agreements. That’s millions of dollars created—not from growth, but from plugging leaks.
Most lost enterprise value isn’t stolen. It quietly leaks away.
If you identify and plug these leaks early, you’ll not only command a stronger exit multiple, you’ll also run a tighter, more resilient company today. Your managers will be less dependent on tribal knowledge. Your cash flow will be more predictable. And when you finally do sit across from that buyer, you’ll have the leverage instead of the excuses.
So where do you start? Begin by looking where most owners never look: contracts, dependencies, and processes. Contracts should be long-term, assignable, and documented. Dependencies like one customer, one supplier, or one person, should be spread out to reduce risk. Processes should be written down so the business runs without the founder. Every time you shore up one of these areas, you’re not just protecting value, you’re compounding it.
The irony? Owners will spend hundreds of thousands chasing top-line growth but neglect the structural leaks that destroy value at exit. Yet it’s these behind-the-scenes fixes that make or break a deal.
The solution is simple but requires discipline: run your company as if it will be sold tomorrow, even if you have no plans to sell for 10 years. The companies that fetch premium valuations aren’t just profitable…they’re built to transfer. Buyers don’t pay top dollar for what you’ve built; they pay top dollar for what they can take over seamlessly and grow.
David Hermann, CEO of hermanngroup and M&A Advisor/Broker at Sunbelt Business Brokers of Colorado
David Hermann is a transformative advisor and strategist who turns complex business challenges into extraordinary successes. Known for driving over $500 million in documented financial improvements for clients, David partners with C-suite leaders to unlock their full potential. With 60+ speaking engagements, numerous publications, and a spot in the top 1% of Consulting Voices and top 1% of the Social Selling Index on LinkedIn, he’s passionate about making strategy, change leadership, and operations insightful and accessible.