Introduction: Why 70% of Small Business Transactions Fail

Expectation Gaps & the Trillion Dollar Problem

Any small business transaction requires two things: a willing buyer and a willing seller. Simple enough. Yet 70% of small business sales fail before closing [Source 1]. The culprit? Price expectation gaps that could have been prevented with valuations grounded in data and analysis.

Here's what actually happens. An owner spends 30+ years building a company. They aren't stupid – they're smarter than average, great in their field, and have figured out how to run and grow a business while doing it. But they don't know mergers and acquisitions – they don't need to know how to buy and sell businesses. So when a broker whispers a number based on "industry multiples" the owner does what any smart person would do: they listen to the expert, and anchor on that figure because they don't know it's been inflated by someone who wants the deal. Then, when they get to market, the buyer runs actual adjusted EBITDA calculations, reviews some market data that's hard to come by, and comes in significantly lower. Deal dead. Six months wasted. Both sides get screwed and go back to square one.

The mechanics are straightforward. Enterprise Value equals adjusted EBITDA times a market multiple. Subtract net debt, true up working capital, and you get equity value – that's the money in the seller's pocket. But when you trust an expert, and it turns out they have their own incentives, you can easily get burned.

What Actually Moves the Multiple

There are a lot of factors that go into selecting the right value for a company – typically a multiple of their adjusted EBITDA. Let's talk about the biggest ones, as supported by public data and what I've seen – the three factors that shift valuations by 2-3x within the same industry.

Size pulls multiples up: a $20M EBITDA company might trade at 6x while its $2M peer/competitor goes for 3x. There's a lot of academic reasons as to why that is, but it comes down to supply and demand: there are more people to buy bigger companies, there are more lenders that will let you borrow money to buy bigger companies, and there are fewer companies available as you go up in size.

Customer concentration pulls values down – sometimes far. Having one customer that makes up a big portion of the revenue can drop the multiple by a "full turn" (1x) or more. There are offsetting factors – if the customer has strong ties to the company, if there's long-term contracts in place, things like that. It really comes down to how sticky the business is – how replaceable the company is to the customer and vice versa.

End markets are another big one – basically, who are the customers, and who are the customers' customers. A sheet metal job shop that makes metal panels for construction companies trades for a different multiple than a similar shop that makes and assembles branded cases for semiconductor manufacturing processes or high-tech medical equipment. Who you sell to matters.

I could go on and on about this. Complex parts and assemblies that few shops can do? Documented processes versus heroic owner involvement? In a high or low cost of labor area? There are a million little factors that turn the dial one way or another, and that doesn't account for changes in the overall economic environment. (It's a long list.)

Most owners know the biggest ones already, but discover some of these realities (and the magnitude) during due diligence. After the LOI. After telling employees. After mentally preparing for the next stage of their life and making plans for their proceeds. The psychological damage from a collapsed deal extends beyond break-up fees and transaction-related expenses. Sellers have to change their life plan and calm down employees or family members. Buyers have to eat the costs in a way that keeps them solvent and pacifies any investors they had lined up. Plans shift. Relationship equity is burned. And life looks a lot different for both sides than what they had planned out.

The solution requires normalized financials, labeled add-backs, and comparable market data from actual deals. Not rules of thumb. Not broker optimism. Real analysis with real multiples based on real EBITDA.

The Problems Nobody Discusses: Incentives & Information Asymmetry

Business brokers earn commissions on closed deals. Investment bankers do too. Both need to get the business owner to (1) decide to sell and (2) hire them to do it. There's a lot of good brokers and bankers, but there's also a lot of people who are hungry for deals: Bad actors initially quote valuations above market prices leading sellers down the path of inflated expectations. They know the pattern: start high to win the listing, then manage expectations down through "market feedback." Owners feel trapped, having already invested time and emotion. Good reps can also make inadequate comparisons when talking about what comparable businesses sold for, but those are honest mistakes and it does happen. That's the shield the bad actors have to hide behind: the approach looks the same when you can't see the incentives. Lastly, many only get paid at closing – unless the contract states differently (i.e., a cancellation fee). This creates fundamentally different incentives: advisors want to get a business to market and get transactions closed, while owners need fair market value and might be able to wait out market fluctuations.

In any event, I've seen the price expectations versus reality difficulty play out a lot in this lower part of the lower middle market – the big small businesses worth over a million dollars but less than ~$20M. The reason for this is simple: at this level, sellers (and some buyers) have limited experience, limited information, and there's not a lot of reliable data online. This gap creates the opportunity for bad actors to be louder than the good ones.

The advisors aren't the only problem. There's a fundamental lack of data for this market. Data is the hardest part of this market. It's not like a stock, where a billion-dollar company must publish their financials in the same format as their direct competitor, and where the total market cap reacts to this information every day. This data is hidden, private, and noisy. A lot of people rely on friends who say they know what similar businesses sold for, or out-of-date knowledge from people who sold similar companies in different eras. When the process is blurry, anecdotes become gospel – and price expectations get skewed.

CPAs and wealth advisors see the wreckage. They watch clients get whipsawed between inflated broker promises and harsh market realities. Yet these trusted advisors often lack transaction data to provide alternative valuations. They know something's wrong but can't prove it with numbers. Meanwhile, formal valuations cost more than many small businesses can swing, and their accuracy is hit-or-miss. That's because of what I mentioned at the jump: prices rely on willing buyers and willing sellers. Everything else is just support – or noise.

The Silver Tsunami: A Retirement Wave That Can Change Everything

If disruption creates opportunity, then this opportunity is massive – and it needs to be handled right. Baby Boomers own $10 trillion [Source 2] in private business value that must transition by 2030. Acquirers need accurate pricing to make offers. Sellers need good advice to give them realistic expectations so that they can plan for the future with transactions that actually close.

Market dynamics are shifting fast. Entrepreneurship through acquisition is growing – people who want to start their own business have discovered that it's easier to buy one that's already running and grow it themselves. Younger business owners are also interested - Over 35% of Millennial and Gen Z business owners plan to acquire competitors within 12 months [U.S. Bank 2025]. And Private Equity has record levels of 'dry powder' - or money ready and waiting to be invested in American small businesses. Simply put, we're about to see a big shift up in both supply and demand.

And it matters – a lot. Per the Small Business Administration's Office of Advocacy, 46% of the American workforce is employed by small businesses. That means that when these companies trade hands, it's felt throughout the economy. This disruption could lead to an age of growth and prosperity, or it could cause a big hiccup in the economy. I know which option I prefer.

By the Numbers

Last updated: November 2025

Right now, the lower middle market is a difficult place for buyers and sellers.

What Next

Buyers and sellers don't have to guess at what a business is worth. Take 20 minutes today: Take your P&L, identify (or ballpark) your biggest add-backs, and calculate your adjusted EBITDA. Then look and see if you can find good data on relevant transactions – sales price divided by adjusted EBITDA provides the multiple on the business. And that's the problem we're trying to solve. That the number, not some friend's gut feeling or advisor's tainted range. And that number is what starts the honest conversation about value.

It gets more complicated from there, because companies can trade on last year's EBITDA, trailing-twelve-month EBITDA, or even next year's projections. They can also trade on asset value, if it's less than the market multiple on EBITDA, or get bought by a customer or supplier for a price way above market because it's worth more to that strategic acquirer than to anyone else. But fundamentally, the way buyers and sellers look at most of these businesses is the same, and can be simplified with: (1) access to good knowledge and an unbiased helper; and (2) relevant, recent data.

Jig, ValueJig, and JIG-AI

And this is the problem we're trying to solve. I believe I can create a database of real (and anonymous) transactions for this market, and that I can pull the information from experts (and my own head) to train an AI model with enough examples and facts to be useful. Together, these two tools will give buyers and sellers an unbiased, easy-to-understand view of the lower middle market.

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