A target's earnings mean one thing if a functioning team can deliver them without the seller, and something else entirely if the seller personally is the reason the numbers look the way they do. Diligence has to answer which one is true before a buyer prices the deal.
Key takeaways
One deavo.ai piece written specifically for buyers assessing a target puts the core diligence problem plainly: owner-dependence “rarely shows up as a line item anywhere in the financial statements, which is exactly why it is easy for a seller to underestimate and hard for a buyer to ignore.” A target can report strong, clean earnings and still be worth substantially less to a buyer than the same numbers would suggest, because a meaningful share of what generates them walks out the door with the seller on the day the deal closes.
The same source lists five concrete things a buyer can actually check during diligence, rather than relying on impression: whether sales and quoting are handled personally by the owner; whether key customer or supplier relationships “exist only through the owner, with no one else on staff who has met the client”; whether processes are documented or “knowledge lives in one person's head”; whether there is a manager or second-in-command; and whether licensing, certification or reputation is “tied to the individual rather than to the business itself.”
None of these require a specialist to assess — they are answerable by talking to the owner directly, and separately to two or three employees, and checking whether the two accounts of “who actually runs this” line up.
This lines up with what a standard diligence process already collects. a due-diligence checklist for first-time buyers lists “employee headcount, roles, wages and who stays” as a core financial and operational diligence item, and a separate piece on what a deal report actually contains notes that “employee information” belongs in any deal report worth relying on — not as a formality, but because who stays is a direct input into whether the earnings the price is based on will actually continue.
The same due-diligence source cited earlier confirms the underlying rule: “the Employment Standards Act, 2000 treats employment as continuous where a buyer hires the seller's employees.” Ontario's own guidance is specific about what that means — a worked example there shows an employee with 10 years of service at the seller, terminated a year after the sale, entitled to eight weeks' notice rather than one, because the earlier service counts. A buyer pricing an integration plan that assumes staff can be let go on short notice, without accounting for how far that service actually reaches back, should confirm that assumption against the actual tenure of the people being kept, not against a generic termination-cost estimate.
Where the plan is to keep the departing owner on as a consultant or employee under a non-compete, Ontario's own guidance is narrower than most buyers assume. Ontario's rule prohibits employers from entering into non-compete agreements with an employee with a specific exception for a sale where “the seller becomes an employee of the purchaser” immediately following the sale as part of the deal, That exception, on the regulator's own wording, names “a sole proprietorship or a partnership,” and does not, on its face, name a corporation — which is the ordinary shape of an Ontario share deal. A separate exception covers only a named list of executive titles. Confirming which exception actually applies is worth doing before drafting the clause, not after.
Deavo's own summary of the commercial response is worth repeating: owner-dependence typically gets priced in through “a lower price, a longer transition or consulting period, an earn-out, or a non-compete plus consulting agreement” — not through a single formula, but through whichever of these actually addresses the specific gap a given target has.
The fifth signal above — licensing, certification or reputation tied to the individual rather than the business — deserves separating out from the other four, because it is not always fixable with a transition period. A key-customer relationship can, in principle, be transferred to a new salesperson over enough time. A business whose ability to operate legally depends on the owner's own personal professional licence cannot transfer that licence to the buyer at all; the buyer either has, or has to obtain, an equivalent licence in its own right, or has to hire someone who already holds one. Confirming which kind of dependence a target actually has — relationship-based or licence-based — changes what a transition period can realistically fix.
A buyer is evaluating a $3.4 million-revenue distribution business where three customers account for roughly 40 per cent of sales, and diligence interviews confirm the owner personally handles all three relationships — no account manager has ever attended a customer meeting without the owner present. The financial statements show none of this; earnings are stable and well-documented.
The buyer structures the offer around a 12-month transition period where the owner stays on as a paid consultant, with introductions to all three key customers scheduled inside the first 90 days, and a modest earn-out tied to retained revenue from those three accounts at the 18-month mark. None of the dollar figures here are typical for any real transaction — the structure itself, transition period plus earn-out tied to the specific risk identified, is the illustration, not the numbers attached to it.
Not necessarily on the headline price — it is just as often addressed through deal structure, such as a longer transition period, an earn-out tied to retained relationships, or a consulting agreement, rather than a straight price reduction. Which lever gets used depends on the specific relationships at risk and how transferable they actually are.
On an asset purchase, no — the buyer chooses which employees to hire, and only those hires trigger Ontario's continuity rule. On a share purchase, the employees stay with the corporation itself, which is now buyer-owned, so the question of continuity doesn't arise in the same way.
It depends on which statutory exception applies and how the clause is drafted. Ontario's general prohibition on employee non-competes has a specific exception for a business sale where the seller becomes an employee, but the exception's own wording names a sole proprietorship or partnership rather than a corporation, so confirming which exception genuinely fits the deal's structure matters before relying on it.
A short call is enough to map which relationships and licences the business actually runs on.
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