The 5 dependencies that lower a small business's value

A dependency matrix is a one-page table that measures the five dependencies that lower a small business's value: clients, suppliers, decisions, knowledge and the bank. For each one, you rate how much it rests on you or on a single person. The result: a score out of 15 and a clear list of projects.

Why a buyer looks at these five dependencies

A buyer isn't buying your last 25 years. They're buying the revenue of the next ones. Every time that revenue rests on one person, they see a risk and offset it: a more cautious price, part of the payment deferred based on results, or a long transition. We explain the mechanism in why buyers pay less for a business that depends on you.

Dependence doesn't come through just one place. It hides behind five different doors, and each one needs different work. That's why step 2 of the path starts by measuring all of them before choosing where to begin.

The five dependencies, one by one

1. Clients

Who holds the relationship with each of your ten largest clients? If the client calls you, even when a sales rep is assigned, the relationship is still in your name. It's often the heaviest dependence, and the slowest to transfer. Our article on handing client relationships to your team lays out a method.

2. Suppliers

Pricing, payment terms, priority during shortages: do they rest on a written agreement or on your handshake? A twenty-year verbal agreement doesn't always carry over to a new owner. See putting your agreements in writing before you sell.

3. Decisions

Which decisions can't be made without you? Prices, discounts, hiring, purchases, exceptions. If even the small ones end up on your desk, the buyer concludes the business has no rules, only a boss.

4. Knowledge

Cost prices, tricks of the trade, each client's history, how to set up the temperamental machine. If that knowledge exists only in your head, or in a key employee's, it leaves with the person.

5. The bank

Does the company's financing rest on your personal guarantee? In a sale, the bank will have to release you from it, and it will usually want other security in its place, often the buyer's. The options depend on each situation: raise it early with your banker, and confirm the mechanism with your lawyer.

How to fill in your matrix this week

Take a sheet of paper. Make five rows, one per dependency, and five columns:

• Who holds it today: you, an employee, the team, a written contract.
• Score from 0 to 3: 0 if everything goes through you; 1 if someone helps but you remain essential; 2 if another person can handle it with a few calls; 3 if it works without you, with written rules or contracts.
• What would happen if you left tomorrow: one concrete sentence.
• The next move: a specific action, not an intention.
• The deadline: a realistic date.

Add up the five scores. You get a total from 0 to 15. It isn't a passing grade: it's a starting point you can compare in six months.

A few tips for scoring honestly:

1. Score the situation as it is, not as you want it to be.
2. Ask someone you trust on the team to fill in the matrix separately. Compare.
3. If you're torn between two scores, take the lower one. A buyer will.

A completed matrix: 5 out of 15

To see what a completed matrix looks like, follow an imaginary owner in Coaticook. His company makes wooden pallets and shipping crates for manufacturers across Estrie: $5 million in revenue, 32 employees. He is 62 and fills in his matrix one Saturday morning.

• Clients: 1. His four biggest clients call him directly, even though they also talk to the sales director.
• Suppliers: 1. The price of lumber rests on a verbal agreement with a sawmill whose owner he's known for thirty years.
• Decisions: 2. His production manager already approves routine purchases and schedules.
• Knowledge: 1. Pricing custom crates lives in his head.
• Bank: 0. The line of credit rests entirely on his guarantee.

Score: 5 out of 15. He isn't discouraged. He picks two projects for the year: getting a written agreement signed with the sawmill, and introducing the sales director to his four clients through joint meetings. He also books a meeting with his banker. The numbers are fictional, but the order of priorities is typical: start with what's quick, launch what's slow early.

Picking projects: quick first, slow early

Once the matrix is filled in, the temptation is to tackle everything at once. It's better to sort each project by two questions: how long it takes, and how much it changes the risk a buyer sees.

• Quick: writing spending limits, naming owners, putting a supplier agreement in writing. A few weeks.
• Medium: documenting know-how, training a second person. A few months.
• Slow: transferring the trust of big clients, reworking the financing. Often several years.

The rule is simple: do the quick projects right away, to gain points and time, and start the slow ones now, because they can't be rushed. Decision rules are often the best first project; see the decisions that always come back to the owner.

What the matrix becomes next

The matrix isn't just for you. Updated over two or three years, it shows a buyer a business that prepared itself, not one discovering its risks during due diligence. It becomes part of the Transition Document, the guide that lets a successor run the business without you.

Keep each dated version. When a buyer asks how the business reduced its reliance on you, a series of matrices answers better than any speech: here is where we started, here is what we did, here is where we are today.

Do it with a pro

Filled in alone, the matrix is often too generous: you believe relationships have been handed over better than they have. With us and our regional partner, each dependency is measured through confidential interviews with your team, then ranked by its effect on your price. Our free audit gives you a first score out of 15 before we even meet.

Owner independence