Building Value and Preparing for a Sell
Introduction
Crossing $1 million in EBITDA signals maturity and scalability—key thresholds that attract private equity and strategic buyers. However, to achieve top valuation, business owners must understand that valuation is shaped by profitability and scalability. Profitability demonstrates financial strength; scalability proves long-term growth potential.
When Is the Right Time to Sell
The right time to sell is when market conditions are favorable and your business shows operational and financial readiness. Ideal timing indicators include:
- Strong overall market economics and investor sentiment.
- Consistent or growing 3+ year performance.
- Well-organized operations and distributed leadership responsibilities.
- EBITDA exceeding $1MM and trending upward.
Common Mistakes That Lower Value
1. Insufficient preparation — Disorganization or poor presentation can reduce valuation by 10–30%.
2. Lack of understanding of valuation — Buyers pay for predictable future cash flow, not just past performance.
3. Misunderstanding deal structure — Most deals involve rollovers, seller notes, and earnouts; it’s rarely a full exit.
4. Failing to assemble a strong deal team — Include a banker, CPA, M&A advisor, transaction attorney, and estate planner.
The 7 Drivers of Value
1. Profitability: Margins matter. A GPM above 50% and NOI above 10% indicate strong financial performance and attract buyers.
2. Scalability: The ability to grow revenue without equivalent cost growth. Scalable systems, automation, and SOPs create premium multiples.
3. Revenue Consistency: Predictable, recurring revenue models are more valuable than volatile, one-time sales.
4. Financial Accuracy: Clean books and insightful financial reporting accelerate diligence and boost buyer confidence.
5. Customer & Revenue Diversity: Reducing reliance on any one customer or service line improves resilience and valuation.
6. Leadership & Organizational Depth: Empowered leadership and defined roles reduce owner dependency and risk.
7. Brand Strength & Market Position: Strong brand equity and reputation can materially increase enterprise value.
Conclusion
If your company exceeds $1MM in EBITDA, preparation for scale and sale should begin now. Value is built through disciplined processes, accurate reporting, and leadership depth. Profitability establishes your foundation—scalability earns your premium.
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