Valuing the Business: Some Difficult Issues

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 738 words

Some of the hardest valuation issues have little to do with profit: they concern whether the things that produce the profit can actually be transferred to a buyer, including contracts that need someone else's consent, approvals from franchisors or licensing bodies, inventory that may not sell, and work that is only partly finished at closing.

A buyer pays for what it will actually own and control after closing. Anything that might not come across, or might come across worth less than it appears, reduces the price or adds conditions to the deal.

Why transferability changes value

When a buyer values your company, it assumes the customers, suppliers, locations and licenses stay with the business. If any of them depend on a third party's approval, the buyer has to price the chance that approval is refused or comes with new terms. That usually shows up as a closing condition, a delay, or a lower price.

Whether a consent is needed often depends on how the sale is structured. In an asset sale, contracts are assigned to the buyer and many require approval. In a sale of the ownership interests, the company itself stays the same, but contracts with change-of-control clauses can still require consent. Your transaction attorney decides which applies; your job is to know what the contracts say before a buyer asks.

Contracts and approvals that depend on someone else

• Customer contracts with clauses that prevent assignment or allow termination if ownership changes.
• Leases that require the landlord's consent to a transfer, or that expire soon after closing.
• Supplier, dealer and distribution agreements, especially exclusive ones, which are often personal to the current owner.
• Franchise agreements, where the franchisor typically must approve the buyer and may impose transfer conditions or fees.
• Licenses and permits that belong to an individual rather than the company, or that must be reissued to a new owner.
• Financing and equipment leases that must be paid off or approved for transfer.

Short contracts and soft commitments

Revenue under month-to-month arrangements or contracts that run only a few months is harder for a buyer to rely on than revenue under multi-year agreements. The business may be just as stable in practice, but the buyer cannot prove it. Where possible, renew key agreements before going to market, on terms that survive a change of ownership, and keep records showing how long customers on short arrangements actually stay. Our guide to what causes a business sale to fall apart in due diligence shows how contract surprises derail deals late.

Buyers and their lenders read these arrangements closely, because the price they offer assumes the revenue continues. A short schedule showing each key contract, its term, its renewal history and whether it needs consent saves time in due diligence and shows a buyer that you have nothing to hide.

Inventory that may not be worth its book value

Inventory on the balance sheet is only worth what it can be sold or used for. Dated, slow-moving or obsolete stock, parts for discontinued models, and items carried at an old cost will be written down when a buyer counts and tests them. Because inventory usually forms part of the working capital left in the company at closing, a write-down can reduce the price directly. Count it, write off what will not sell, and value the rest honestly before a buyer does. Our answer on preparing inventory and working-capital records before a sale sets out the steps.

Work in progress and customer deposits

A manufacturer with orders on the floor, or a trade company with jobs half complete, will close the sale in the middle of unfinished work. Someone has incurred the cost, someone will collect the revenue, and the agreement must say how it is split. Customer deposits for work not yet done are usually treated as an obligation the buyer takes on, which can reduce what you receive. A clear schedule of open jobs, with costs to date, amounts billed and amounts still to come, turns this from an argument into a calculation.

How MDR & Associates handles transfer issues

We review key contracts, leases, approvals and inventory with you early, before buyers are contacted, so issues can be fixed or disclosed on your terms, and we work alongside your transaction attorney as the documents are drafted. That preparation is part of our sell-side representation. To see a starting range for your company, request a free valuation snapshot.

Where this fitsBusiness valuation in Texas →

Questions owners ask next

Should I ask customers for consent before I sell?

Not early. Asking signals a sale and can break confidentiality. Usually the attorneys identify which consents are needed, and the requests are made close to closing, once a buyer is committed, often with the buyer present so the customer meets the new owner at the same time.

What happens if a franchisor will not approve my buyer?

The sale to that buyer usually cannot close. Read the transfer section of your franchise agreement before going to market, understand the approval criteria and any fees, and screen buyers against those criteria early so the approval is a formality rather than a surprise.