A buyer is purchasing future profit they can rely on. If the customer relationships, the pricing and the daily decisions all depend on one person who is leaving, they discount for it or walk away. This gives a headline value from profit and a multiple, then five honest questions, then the figure a buyer would take off — which is the same figure a system would put back.
A buyer is purchasing future profit they can rely on. If the customers ring you rather than the business, if only you can price a job, if every decision routes through you and the whole thing stalls three days after you leave, the profit they are buying walks out of the door with you — and they price that in, or they walk. This puts a figure on it, and then shows what the same figure looks like as a project.
The headline is the easy part and the least reliable: adjusted profit — after paying yourself what a manager would cost, because a buyer will have to — times a multiple. For small owner-run trade businesses that multiple is commonly cited somewhere around two to four times, and it varies with sector, size, growth, assets and what the market is doing in the year you sell. It is a slider here for exactly that reason.
The dependency index is five questions a buyer will ask in the first meeting, averaged. What share of the customer relationships are with you personally. What share of the pricing only you can do. What share of daily decisions route through you. How many days the business runs before things stall when you are away. How much of the operation is written down in a system rather than in your head. Zero is a business; one is a job with staff. The index times the maximum discount a buyer would apply for total dependence is the discount — and the discount times the headline is you, in pounds.
Because every question in the index is also the reason the business cannot grow past you. Customers who only deal with the owner are a queue. Pricing only the owner can do is a ceiling on who is allowed to quote. Decisions routed through one head are ten weeks a year of that head answering questions — the owner dependency calculator counts them. A business that stalls after three days is a business that cannot take a holiday, let alone a buyer.
The fix for the discount is the fix for the Tuesday. In the wholesale nursery the prices went onto the website and became the rule the quoting system follows; the orders went out of folders and into a pipeline per role, every stage a task with an owner; the customer history went into a CRM that chases quotes and emails customers by itself. The owner is consulted for decisions rather than facts, the business went from four people to fifteen, and it became transferable — which is the word a buyer uses for the thing they will pay for.
£250,000 of adjusted profit at 3.0×: a £750,000 headline. Sixty per cent of relationships, 50% of pricing and 70% of decisions depend on the owner; the business runs three days without them; 20% is documented. Index: (0.6 + 0.5 + 0.7 + 0.8 + 0.9) ÷ 5 = 0.70. At a 40% maximum discount that is 28%, or £210,000, leaving about £540,000. Get the index to 0.35 and the discount is 14% — £105,000 back.
Answer the five questions honestly, then look at which one is dragging the index. Pricing and decisions are the fastest to move, because they are systems: a price book every quoter quotes from, a pipeline where every stage has an owner and the data it needs. Relationships take longer and start with the business, not you, answering the phone. The operations audit maps all of it in two days inside the working week; the other calculators price the pieces; and the short version of the method is on the byHoratio homepage.
A simple headline is adjusted annual profit — after a market-rate salary for the owner — times a multiple, and for small owner-run trade businesses that multiple is commonly cited somewhere around two to four, varying widely with sector, size, growth and market conditions. That headline is then adjusted for risk, and the risk buyers price first in an owner-run business is the owner. This tool is illustrative; a real valuation needs an adviser.
The amount a buyer takes off because the profit they are buying depends on a person who is leaving. If customers ring you rather than the business, only you can price a job, decisions route through you and the operation stalls days after you go, the buyer cannot rely on the profit continuing. They either discount, keep you on through an earn-out, or walk away. The calculator expresses the discount as an index from five questions times a maximum discount you set.
Move facts out of your head and into systems. Prices into one price book every quoter uses. Orders into a pipeline where every stage has an owner and the data it needs. Customer history into a CRM that chases and updates by itself. Then let the business, not you, answer the phone. The wholesale nursery in case study 004 did exactly this and grew from four people to fifteen with the office unchanged — and became transferable in the process.
Profit, adjusted. Turnover multiples exist but tell a buyer little about what they will earn. Use profit after you have paid yourself what it would cost to replace you with a manager, because the buyer will have to, and after removing anything unusual in the year. Your accountant can produce an adjusted figure quickly.
No. It is one lens — the owner-dependency lens — with an illustrative multiple and an illustrative maximum discount, both of which you can change. Real valuations consider assets, growth, customer concentration, contracts, sector and the buyer's own position, and they are done by people who do them for a living. Use this to see the size of the dependency problem, not to price a sale.
The fix for the discount is the fix for the Tuesday. Prices in a book, decisions in a pipeline, history in a system. Twenty minutes, no deck, no pitch.
HORATIO@BYHORATIO.COM
What being the answer costs a year — the same dependency, priced in hours.
The nursery that became transferable — and tripled revenue while doing it.
The hire, the charge-out rate, the margin leak, and more.