Across hundreds of mid-market transactions, a consistent pattern emerges. The problem is that owners routinely believe they are closer to an exit than they actually are due to a structural misalignment between how the business was built and how investors evaluate risk.
Many founder-led companies demonstrate impressive operating performance including growth, margins, recurring revenue and customer retention. Yet when assessed by institutional buyers, these same businesses often carry avoidable risk. This risk constrains valuation and deal structure.
This is not a quality issue.
It is a readiness issue.
Private equity firms do not only value effort or historical momentum. They also underwrite risk-adjusted, forward cash flows under new ownership. They need to evaluate exits from this lens.
What Actually Drives Value
Founder-led organizations often excel operationally but remain dependent on informal processes, founder knowledge, and legacy systems. These characteristics work in an entrepreneurial environment, but get discounted in a transaction.
Financial
Issues occur with reporting: it’s built for tax rather than diligence. Other speed bumps include inconsistent classifications, revenue recognition, weak accrual discipline, poor margin visibility, etc.
Operational
There might be stable execution, but it’s diminished by undocumented processes along with inconsistent KPIs, informal controls, and latent IT, HR, or security risk.
Strategic
Strategic weaknesses include compelling intuition but limited articulation. The other main challenge is a clear vision and related integrated operating plan to achieve it, but with weak forecasting, unclear differentiation, and growth not strongly tied to a financial model.
These gaps rarely stop a deal.
They systematically reprice it.
At its core, PE equals underwriting transferability.
What Effective PE Transferability Means
Businesses that demonstrate these attributes reduce perceived risk and are rewarded with higher multiples, more cash at close, and cleaner deal structures.
Insufficient readiness typically results in a volley of hold-ups at closing.
Pitfalls of Insufficient Readiness
The cumulative impact often reduces realized proceeds by 10–30%.
Preparedness reverses that equation.
Value at exit is rarely created in negotiation.
It is created years earlier through financial discipline, organizational design and strategic clarity.
Here is a way to look at it. Founders don’t lose value because their businesses underperform, they lose value because the business was never built to be owned by someone else.
If you want an objective, PE-grade view of how your business would be valued and evaluated, and where value is leaking, please reach out to me or one of my Falcon colleagues.
Readiness isn’t optional.
It’s the difference between potential value and realized value!