How does the size of our business, specifically the size premium, dictate the valuation multiple we can demand, and what operational steps must we take to jump to the next size bracket before listing?

Question

Tyler Smith · Accepted Answer

In M&A, size matters because of the size premium. Buyers apply lower multiples to smaller businesses to compensate for the higher inherent risk and lack of market liquidity. If your EBITDA is under two million dollars, you face a severe size discount. To break into a higher multiple bracket, you must show the business has the infrastructure to scale. To do this, use your EOS tools to prove the business is institutionalized. First, ensure every seat on your Accountability Chart is filled with people who GWC, meaning they Get It, Want It, and have the Capacity to Do It. The owner cannot be occupying multiple critical seats. Second, turn your Core Processes into documented, packaged intellectual property. A buyer is not just purchasing your current cash flow; they are buying your operating system. When you can hand a buyer a fully functioning operational model that runs independently of you, they see a platform, not a risky small business. Third, use your V/TO to clearly outline the path to the next growth tier. Show how your current leadership team is tracking toward those goals using measurable, historical data from your weekly Scorecard. By demonstrating a predictable, system-backed growth trajectory, you force the buyer to value your business based on its future capability rather than its current small-scale reality. This shifts the negotiation from a backward-looking multiple discount to a forward-looking premium.