• Home
  • The 3 Financial Metrics That Kill Deals: What Every Business Owner Must Know

The 3 Financial Metrics That Kill Deals: What Every Business Owner Must Know

The 3 Financial Metrics That Kill Deals What Every Business Owner Must Know
AT Lion, we have seen hundreds of deals.
The ones that die almost always have the same problem: A financial metric that signals risk to the buyer.
In this guide, I’m going to walk you through the three financial metrics that kill deals more than anything else. If any of these are red flags in your business, you need to know about it BEFORE you hit the market.
Because once a buyer sees these problems, the deal is either dead or heavily discounted.

Metric #1: Owner Dependency Ratio

What it is: The percentage of EBITDA that comes directly from the owner’s personal effort.
Why it matters: If your business falls apart without you, it’s not worth much. Buyers are buying a business, not a job. They want systems and people, not a dependent relationship on one person.
How to calculate it:
Owner Dependency Ratio = (Owner’s personal revenue/Total EBITDA) × 100
Example:
  • Your HVAC business generates $500K EBITDA
  • You personally close 60% of deals ($300K)
  • Your team closes 40% ($200K)
  • Owner Dependency Ratio = 60%
The problem: A 60% owner dependency ratio signals massive risk. If you leave, the business loses $300K in revenue. That’s a deal killer.
What buyers want: Less than 20% owner dependency. Ideally, less than 10%.
How to fix it:
  • Train your sales team to close deals
  • Document your sales process and hand it off
  • Build a sales infrastructure that doesn’t depend on you
  • Hire a sales manager to lead the team
  • Create systems and processes that scale without you
Timeline: 6-12 months to meaningfully reduce owner dependency
Impact on valuation: A business with 60% owner dependency is worth 30-50% less than one with 10% owner dependency. Same revenue, massive difference in value.

Metric #2: Customer Concentration Ratio

What it is: The percentage of revenue that comes from your top 3 customers.
Why it matters: If you lose one customer, does your business collapse? Buyers hate this risk. They want diversified revenue streams.
How to calculate it:
Customer Concentration Ratio = (Top 3 customers’ revenue / Total revenue) × 100
Example:
  • Your plumbing company generates $2M in revenue
  • Customer A: $600K (30%)
  • Customer B: $400K (20%)
  • Customer C: $300K (15%)
  • Customer Concentration Ratio = 65%
The problem: A 65% concentration ratio means you’re one contract loss away from a 65% revenue drop. That’s a deal killer.
What buyers want: Less than 40% of revenue from top 3 customers. Ideally, less than 30%.
How to fix it:
  • Diversify your customer base (add 10-20 new customers)
  • Move away from large contract-dependent relationships
  • Build recurring revenue streams (contracts, subscriptions, retainers)
  • Reduce dependence on any single customer
  • Document customer relationships so they transfer to the buyer
Timeline: 12-24 months to meaningfully reduce concentration
Impact on valuation: A business with 65% customer concentration is worth 20-40% less than one with 30% concentration. Same revenue, different risk profile.

Metric #3: Revenue Growth Trajectory

What it is: Whether your revenue is growing, flat, or declining year-over-year.
Why it matters: Buyers want to see momentum. A flat or declining business is a red flag. A growing business commands a premium.
How to calculate it:
YoY Growth Rate = ((Current Year Revenue – Prior Year Revenue) / Prior Year Revenue) × 100
Example:
  • 2023 Revenue: $2M
  • 2024 Revenue: $1.9M
  • YoY Growth Rate = -5%
The problem: Declining revenue signals problems. Is the market shrinking? Are you losing customers? Is the business struggling? Buyers will assume the worst and discount accordingly.
What buyers want: Positive growth. Ideally, 5-15% YoY growth.
How to fix it:
  • Increase marketing and lead generation
  • Improve customer retention (reduce churn)
  • Raise prices (if market allows)
  • Expand into new markets or customer segments
  • Launch new products or services
  • Improve sales process and conversion rates
Timeline: 6-18 months to show meaningful growth trajectory
Impact on valuation: A business with 10% YoY growth commands a 20-30% premium over a flat business. Same EBITDA, different trajectory.

The Real Impact: How These Metrics Compound

Here’s where it gets scary. These metrics don’t exist in isolation. They compound.
Scenario A: The Red Flag Business
  • Owner Dependency Ratio: 60%
  • Customer Concentration: 65%
  • Revenue Growth: -5%
  • Base EBITDA: $500K
  • Industry Multiple: 4.5x
  • Theoretical Valuation: $2.25M
Reality Valuation: $1.2M (47% discount)
Why? Because buyers see all three red flags and assume massive risk.
Scenario B: The Optimized Business
  • Owner Dependency Ratio: 10%
  • Customer Concentration: 25%
  • Revenue Growth: +10%
  • Base EBITDA: $500K
  • Industry Multiple: 4.5x
  • Theoretical Valuation: $2.25M
Reality Valuation: $2.8M (24% premium)
Why? Because buyers see a stable, growing, diversified business with minimal key person risk.
The difference: $1.6M. Same EBITDA. Different metrics.

Your Metrics Audit: The 30-Minute Assessment

Here’s what to do right now:
Step 1: Calculate Your Owner Dependency Ratio
  • List all revenue sources
  • Identify which ones depend directly on you
  • Calculate the percentage
  • Target: Less than 20%
Step 2: Calculate Your Customer Concentration Ratio
  • List your top 10 customers
  • Calculate their revenue contribution
  • Add up your top 3
  • Target: Less than 40%
Step 3: Calculate Your Revenue Growth Trajectory
  • Compare last year’s revenue to this year
  • Calculate YoY growth rate
  • Target: Positive growth (5%+)
Step 4: Identify Your Red Flags
  • Which metrics are red flags?
  • Which ones need attention?
  • Rank them by impact
Step 5: Create Your Action Plan
  • For each red flag, what’s your fix?
  • What’s the timeline?
  • What resources do you need?

The 90-Day Action Plan

Weeks 1-2:

 Calculate all three metrics for your business

 Identify which ones are red flags

 Understand the impact on your valuation

Weeks 3-6:

 For Owner Dependency: Start cross-training your team

 For Customer Concentration: Launch new customer acquisition campaign

 For Revenue Growth: Implement sales/marketing improvements

Weeks 7-12:

 Track progress on each metric

 Adjust strategy as needed

 Plan for next 90 days

The Bottom Line

These three metrics determine whether a buyer sees your business as a solid investment or a risky bet.
If you have red flags in any of these areas, you have two choices:
  1. Fix them now (takes 6-24 months, but increases valuation by 20-50%)
  2. Sell now (accept a discounted valuation, deal with buyer concerns)
The best owners choose option 1. They understand that the time invested in fixing these metrics pays massive dividends when they eventually exit.
Don’t leave money on the table. Know your metrics. Fix your red flags. Then sell.

Next Steps

Ready to understand your metrics and create a plan to fix them?
  1. Calculate your three metrics – Do the 30-minute audit
  2. Identify your red flags – Understand where you stand
  3. Get expert guidance – Work with an advisor to create your action plan
Get Your Metrics Assessment
About Lion Business Advisors
We help business owners understand their metrics and create actionable plans to improve them. Our valuation-first approach means we start with the numbers. If you’re thinking about selling in the next 1-3 years, let’s talk about your metrics.

Advisors

Our Brands: Lion Business Brokers, Lion Group Real Estate , BizFlipExit, Blue Collar Business Brokers, and HVAC Business Brokers. are a subsidiary of Lion Business Advisors LLC of Texas. Professional Business Brokers, providing Mergers and Acquisitions services throughout Texas, Oklahoma, Louisiana, Arkansas, Alabama, and Kansas. Texas Offices: Austin, Dallas, Fort Worth, Houson, and Temple.
Lion Business Advisors is not licensed to practice law, draft legal documents and/or provide legal advice. Nothing contained within this website is intended to be an offer to either buy or sell securities. Mergers and Acquisitions Dealer Exemption Section 139.27 | XML Sitemap PRINCIPLE OFFICE ADDRESS: 1250 S Capital of Texas Hwy, Building 3, Suite 400, Austin, TX 78746
Email: Contact Us
Phone: 800.525.3542

© 2026 Lion Business Advisors. All Rights Reserved.