Situation
When reviewing business transactions, one pattern is hard to ignore: most of a company’s value isn’t on the balance sheet.
In large public companies, research shows 80–90% of enterprise value comes from intangibles. In private firms, it’s typically 60–70%.
For business-owner clients, that means the majority of their wealth depends on assets that are difficult to measure, protect, and transfer—things like:
- Specialized knowledge and judgment held by key individuals
- Deep customer and vendor relationships
- Cultural glue that keeps teams performing at a high level
These “human intangibles” are the drivers of revenue and continuity—but they’re also the easiest to lose when ownership changes.
Complication
Every transition—whether planned or forced—creates a risk that key people, knowledge, or relationships disappear at the very time they’re most valuable.
Buyers see that risk immediately and price it in with valuation discounts for dependency or continuity risk.
Even strong businesses can see their multiples drop when too much value depends on a few individuals.
Financial statements may look solid, but beneath the surface the business is fragile.
As an advisor, this is where you can make a measurable difference: helping your client protect enterprise value before the sale, not just after the LOI.
Resolution
Leading advisors are introducing clients to Performance Unit Plans (PUPs)—a next-generation alternative to phantom stock or equity participation.
These plans don’t give away ownership but instead reward key people for results that increase transferable value, such as:
- EBITDA or revenue growth milestones
- Client retention and satisfaction metrics
- Leadership and succession readiness
- Documenting and transferring institutional knowledge
By linking incentives directly to measurable business performance, these plans reduce key-person risk, improve retention, and make the business more attractive to buyers.
For the owner, it’s a strategy that turns people risk into performance value—and for you, it’s a way to help clients increase valuation multiples and strengthen their exit story.
Takeaway
When 60–70% of a client’s value walks out the door every night, protecting it isn’t optional—it’s essential. Helping owners lock in key people before a liquidity event can mean millions more at exit.
A thought for leading advisors: In every market, someone is asking sharper questions. If your competitors reach your best business-owner clients first, they may be shaping the exit conversation before you do.
Want a simple way to stay in front of those conversations?
Email me for the Pre-Flight Review Checklist — a framework for uncovering hidden risks before your client’s liquidity event.
