What Add-Backs Are and When They Backfire
September 4, 2026
Does Your Business Run on Process or on People?
October 13, 2026Nobody likes to think about this one. But it comes up, and when it does, it comes up fast.
A business owner I know spent the better part of a year preparing his company for sale. Good financials, solid team, clean books. Then he had a health scare. Nothing catastrophic, but serious enough to sideline him for a few months. The deal he had been working toward got complicated in a hurry. Buyers who had been enthusiastic started asking questions they had not asked before. The timeline stretched. The leverage shifted.
He got through it and eventually closed. But the experience changed how he thought about the relationship between his personal health and the value of what he had built.
What Buyers Are Really Evaluating
When a buyer looks at a lower middle market business, one of the first things they are trying to understand is risk. And in owner-operated companies, a significant amount of that risk lives in a single person.
They are asking: what happens to revenue if this person is not available? Are the key customer relationships portable, or do they depend on the owner showing up? Is there a team that can make decisions, or does everything flow through one desk? These are not theoretical questions. Buyers have watched deals fall apart and acquisitions underperform because the person they were counting on was not there.
Owner health is a version of that same risk. It is not morbid to think about. It is practical.
The Key-Person Problem
Most buyers will ask directly whether there is key-person risk in the business. What they are getting at is whether the company’s performance is tied to any individual in a way that creates vulnerability. The owner is almost always at the top of that list.
This shows up in valuation. A business where the owner is deeply embedded in operations, sales, and customer relationships will carry a higher perceived risk than one where those functions are distributed across a capable team. Higher risk means buyers build in a discount, either in price or in deal structure, to protect themselves.
What makes this worth thinking about well in advance is that the solution is not complicated. It just takes time. Reducing key-person risk means deliberately transferring relationships, knowledge, and decision-making to other people in the organization. That is not something you can do in the six months before a sale. It is something you build over years.
What a Health Event Does to a Deal in Progress
A sale process is long. From the first serious conversation to closing, most transactions in the lower middle market take six months to a year, sometimes longer. A lot can happen in that window.
If an owner becomes unavailable during a transaction, even temporarily, it creates uncertainty at exactly the wrong moment. Buyers get nervous. Lenders get nervous. The momentum that took months to build can evaporate quickly. Deals can be restructured at less favorable terms, or they can fall apart entirely.
This is not a reason to panic. It is a reason to prepare. Owners who have done the work of reducing their operational footprint, documenting processes, and developing their leadership team are in a much stronger position if something unexpected happens. The business keeps running. The deal keeps moving.
Protection That Works Before and After a Sale
Beyond the operational side, there are financial tools worth having in place. Key-person life insurance and disability insurance are standard for a reason. They protect the business if something happens to you, and they signal to buyers that the company has thought about continuity. Some buyers will ask about this coverage directly during due diligence.
Buy-sell agreements are another piece of this, particularly if you have partners. A well-drafted agreement that addresses what happens in the event of death, disability, or incapacity removes a layer of uncertainty that can otherwise complicate a transaction significantly.
None of this is complicated to put in place. What it requires is deciding to do it before you need it.
The Bigger Picture
There is a version of this conversation that is purely transactional: reduce key-person risk, get better valuation. That is true, and it matters.
But there is a bigger version too. A business that does not depend entirely on you is a better business to run, not just to sell. It gives you more freedom. It lets you take a real vacation without your phone blowing up. It means the company you spent years building can keep performing whether you are in the office or not.
That is worth building toward regardless of when you plan to exit. And if a health event ever does come your way, you will be glad you started.
Thinking about how your business would hold up without you is a conversation worth having sooner rather than later. Reach out to Touchstone Advisors for a confidential discussion about where your business stands and what steps make sense for your situation.
Steven Pappas, M&A MI
Partner, Managing Director
Touchstone Advisors
860-669-2246
spappas@touchstoneadvisors.com
