Our historical financials look stable, but our broker suggests we use a market multiple approach based on recent public transactions. How do we defend our higher valuation multiple when our private company lacks the liquidity and scale of those public comparables?

Question

Tyler Smith · Accepted Answer

To defend a premium multiple based on public market comparables, you must overcome the private company discount by proving your operational efficiency and predictability match or exceed those public entities. Buyers apply a discount to private firms due to lack of liquidity, key-person risk, and unstable cash flows. You can neutralize these concerns by using the income approach alongside the market approach to demonstrate superior financial health. Show the buyer your historical margins and project your future cash flows using a detailed discounted cash flow model. Highlight your low customer concentration, recurring revenue streams, and high customer retention rates. If your operational overhead is lower than public comparables due to automated workflows, prove that this efficiency is sustainable. Use your V/TO® to show a clear path to continued growth that does not require massive capital expenditures. When you present your financials, ensure your books are fully audited and your EBITDA adjustments are defensible. By combining a clean operating system with professional-grade financial reporting, you show the buyer that your private business operates with the discipline of a public company, justifying the higher multiple they would pay on the open market.