The value of your business isn’t just about the earnings it generates—it’s about how sustainable those earnings are for the new buyer once you step away. This is because in medium sized business, where companies range from $10M - $150M in revenue, and having EBITDA of $1.5M - $20M, buyers are concerned with risk to earnings, as much as earnings themselves.

The reality is: the smaller the company, the smaller the multiple. Most businesses in the $1M - $4M EBITDA range sell for 4-7x earnings —but most deals land at the lower end of that range.

Why? Because buyers see risks that owners take for granted: relationships with employees, suppliers, customers, a lack of depth within the management team and c-suite, and often, a business model that relies too heavily on the owner.

Buyers don’t pay a premium for uncertainty.

It’s All About the Multiple

Most businesses in the $1.5M - $4M EBITDA range are strong, well-run, great family businesses—but they were built for lifestyle, not built to sell.

The difference between your current value and full market value comes down to closing gaps in a few key areas:

A: The things you take for granted after running the company for 30 years (experience, loyalties customers, suppliers and employees, management succession plan.)

B: Transitioning from running a business as a family business, to a business run on best practices.

C: Being able to articulate how to grow the company if you had more time, capital and energy.

Once you understand the above points, you can then focus on the things a buyer is concerned with, which is:

1: The first thing a buyer is looking at is who is going to run the company after he buys it, and it will generally have some combination of the buyer, existing management team, or new hires.

2: Of total revenue, what percentage of revenue is recurring and the buyer count on after the purchase?

3: With new capital or energy how does he break the glass ceiling and grow the business organically or via acquisitions.

Understanding the above, and other factors, that support sustainable EBITDA, the buyer will apply a multiple upon earnings. To best assess how a buyer is going to look at your business and arrive at a multiple, we have produces a set of algrithms that measure the 7 key components that comprise the multiple so you can understand how the potential buyer will view your business and what you need to do to improve that outcome.

At Exit Boston, we call these "The 7 Pillars of Value Creation".

So the first step is to see how a buyer would currently score your business in those 7 areas and then compare that score to a company that was built to sell. This valuation gap is what almost every business in the $1.5M - $20M EBITDA range needs to address.

Below is a visual representation of Exit Boston's unique systematic approach to improving the 7 key drivers of business value.