You may or may not be aware that the most successful business sales don’t begin at the negotiation table – the process begins months or years in advance. For business owners planning a future exit, building value doesn’t happen automatically. It’s not just about growing revenue or cutting costs. It’s about making your business more profitable, more structured, more transferable, and less dependent on you. Your buyers will then see and appreciate an asset they can confidently invest in, with greater clarity and lower risk.
We refer to this planning and preparation process as Exit Value Optimization. Whether you plan to sell your business in six months or six years, or even if you plan to hold the business for a long time, the earlier you begin to focus on value optimization, the better your results will be – so that your company performs well now and is more valuable to sell later.
What is Exit Value Optimization?
Exit Value Optimization, or simply Business Value Optimization, is the strategic process of improving your business’s value well before a sale. It focuses on strengthening profitability, documenting processes, and reducing owner reliance so your business commands a stronger valuation and attracts better buyers and higher offers. It’s not about overhauling everything; it’s about identifying where the value gaps are and closing them off to reduce uncertainty and create value.
Business Value Optimization services focus on improving the profitability of your business now and the valuation of your company should you decide to present or market it to bankers, investors, buyers or other third parties. By building a foundation of transparency, accuracy, documented processes, and strategic insight into your financial function and operations, business owners will gain a clear understanding of the key factors, financial and otherwise, that drive their company’s true performance and value.
Minimizing Risk for Potential Buyers
One of a buyer’s main goals is to minimize risk and uncertainty when acquiring or merging with an external business. A business with solid earnings, clean financials, and documented, repeatable processes will undoubtedly have a higher value to potential buyers because it has greater predictability and lower risk. Easier to step in and run. Much easier to scale.
When you prioritize building value in your business, you are able to:
- Improve your leverage in negotiations
- Attract more qualified, serious buyers
- Prepare for a smoother, less stressful transition
- Secure higher and better offers
- Earn more money for yourself even before you sell!
Building a Stronger Base of Earnings by Optimizing Profitability
Many buyers use a multiple of earnings (like EBITDA) as part of their valuation analysis. The greater your profits, the higher your potential valuation, and for two reasons:
- Higher profitability → Higher base against which the earnings multiple will be applied.
- Higher profitability → Higher range of valuation multiple
For example, a $1M EBITDA company may be likely to earn a 3-4x valuation multiple, while a $3M EBITDA company may be more likely to earn a 4-7x valuation multiple.
Reducing Risk and Owner Dependency through Operational Systems
But, in the example above, why does the smaller company value for 3x instead of 4x? And why does that larger company yield a valuation of 4x instead of 7x?
There is a third factor that also drives company valuation in a significant way:
3. Better systems and processes → Higher valuation within the applicable range of multiples
If your business can’t run without you and if no one outside your organization knows how it operates, it will raise an alarm to potential buyers and result in a more highly risk-discounted offer for your company.
- $1M company with 3x valuation = $3M
- $1M company with a 4x valuation = $4M
- $3M company with a 4x valuation = $12M
- $3M company with a 7x valuation = $21M
Developing systems that work for your business operations and that will be turned over effectively to the buyer will result in higher valuations. Always. Every single time. Systematization and documentation are worth their weight in gold.
Ready to Start Improving Your Profits and Valuation Now?
Preparing your business for greater profit now and an eventual exit later can be challenging and time-consuming, but it also is highly achievable for you and your company with the proper guidance and support. Sabre Financial Group has guided business owners through every phase of the exit preparation journey. Whether you are thinking about selling in six months, six years, or more, Sabre distinguishes itself well as a valuable and trusted advisor every step of the way.
If you would like to explore ways that we can help you to improve the profitability and valuation of your growing company, we would be happy to share some thoughts and have that conversation with you. Please feel free to contact us at Communications@Sabre-Financial.com or Contact Us – Sabre Financial Group.