How Buyers Actually Value Your Business

Welcome back to the Mid Market Insider!

Today, we’re breaking down a critical topic: how buyers actually value your business and the specific numbers you should be tracking now if you want a higher exit multiple.

Most owners think valuation is based on a simple multiple of EBITDA.

But the truth is, buyers are going to look much deeper than that.

They analyze your numbers to assess risk, predictability, and transferability.

In other words, they’re not just looking at how profitable you are today… they’re asking, can this business keep performing at the current level after the sale?

The businesses value is based on a multiple of EBITDA but that multiple presumes that certain metrics will check out.

Here are some of the key metrics they care about most:

• Customer concentration: If one client makes up 30% of your revenue, that’s a red flag. Heavy dependence on a single relationship signals risk.

• Growth rate: Buyers want steady, predictable growth, not sudden spikes or declines that suggest volatility.

• Margin trends: Strong, consistent margins show operational discipline and pricing power. Erratic margins raise questions about stability.

• Revenue mix: Predictable, recurring revenue is far more attractive than one-off projects or transactional sales.

These factors influence not just how much your business will sell for but if it sells at all!

Many owners spend years focusing on top-line revenue or the dream of a big payday, but they ignore the foundational metrics that make a business attractive (or even viable in the long-term) to a buyer.

What to do instead:

Start by thinking like a buyer. If you were investing millions into an acquisition, what would you want to see? Predictability, stability, and upside you can rely on… not vague promises or future potential.

Here’s how to actually position your business to ensure it will sell:

1. Track key metrics consistently

Make them part of your culture. Don’t just track revenue and EBITDA once a year. Monitor customer concentration, margin trends, churn, and recurring revenue every single month.

Create dashboards that give you (and eventually a buyer) a clear, transparent view into the health of the business. Clean, reliable, real-time data immediately boosts buyer confidence.

2. Strengthen and diversify your revenue streams.

A business with strong recurring or contractual revenue (think maintenance contracts, subscription models, or retainer agreements) will almost always trade at a higher multiple than one relying on one-off sales. Buyers are paying for future cash flows so make those cash flows predictable.

3. Reduce reliance on you (or any single person).

The more the business depends on you personally, the more risk a buyer sees. Build a leadership team, empower managers, and document processes so the business runs without you. This not only makes the business sellable, it dramatically increases perceived value.

4. Prove operational excellence.

Strong, steady margins and clean financials show discipline and efficiency. If your margins are trending upward, it signals pricing power and operational control… both key to a premium valuation.

5. Build defensible moats.

Whether it’s proprietary technology, unique market positioning, exceptional customer loyalty, or exclusive vendor relationships, buyers will pay more for a business they believe is hard to replicate or replace.

6. Invest in brand reputation and customer experience.

A business with a strong brand and loyal customer base is far more attractive. High Net Promoter Scores (NPS), positive reviews, and low churn rates all help support a higher valuation.

7. Get your legal and financial house in order.

Nothing scares off buyers faster than sloppy or incomplete documentation. Maintain accurate, GAAP-compliant financials, ensure all contracts and IP are properly documented, and be ready with clean, transparent records.

8. Identify and improve weak points now, not when you’re ready to exit.

A buyer will uncover every flaw during diligence. The best time to fix them is long before you decide to sell. Start now so you have a track record of improvements to show.

Remember:

Buyers don’t pay for potential, they pay for proof. Proof of stability. Proof of growth. Proof that the business can thrive without you.

If you want to ensure you can sell your business, you can’t just hope for it in the future. You have to build for it today.

Run your business like you’re preparing to sell it tomorrow, even if you plan to keep it for years. Not only will this make your company more attractive, but it will also make it stronger, more resilient, and more profitable… whether you decide to sell or not.

That’s all for today’s newsletter! Thanks for reading!

📅 Next Week:

Next week, we’ll dig into another costly mistake owners make: knowing what they should do (like delegating more) but choosing not to do it. We’ll talk about why bridging this gap is critical to unlocking growth and building a business that doesn’t depend on you.

Keep building,
Nick

P.S. 

If you want to discuss your business goals in greater detail, book a discovery call: