The buyer is using a capitalization of earnings method based on our historical trailing twelve months, but our newly implemented AI automation has slashed our cost of delivery by forty percent over the last ninety days. How do we force them to use a discounted cash flow model that reflects our current run-rate margins?

Question

Tyler Smith · Accepted Answer

Historical valuation models like a capitalization of earnings method fail to capture the true value of recent operational breakthroughs. If you have recently optimized your delivery model using AI, your historical financials will show high labor costs that no longer exist. You must force the buyer's valuation model to look forward, not backward. To do this, you must present a detailed, run-rate adjustment to your adjusted EBITDA. Take your last ninety days of financial performance, annualize it, and show the permanent step-down in cost of delivery. Prove that these savings are sustainable by sharing your documented workflows and your Accountability Chart, which should show a leaner, more efficient team structure. Push the buyer's investment bankers toward a discounted future earnings model. Provide them with a highly credible three-year financial forecast that is backed by operational data, not just hope. Show them your weekly Scorecard metrics and your historic Rock completion rates to prove your team consistently hits its targets. When you demonstrate that your AI-driven margins are fully systemized and that your team has a track record of operational execution, you take away the buyer's justification for using outdated historical averages. You show them that buying your business at a historical multiple is a transfer of your hard-earned value to their pocket.