Our company sells high-ticket enterprise contracts with six-month sales cycles, which makes our quarterly EBITDA lumpy and exposes us to bad timing during a twelve-month sale process. How do we structure our valuation baseline and working capital targets so temporary timing dips in TTM EBITDA do not trigger a valuation re-trade?

Question

Tyler Smith · Accepted Answer

When you sell a business with long sales cycles, relying strictly on Trailing Twelve Months EBITDA leaves you vulnerable. A single delayed enterprise contract can cause your TTM numbers to dip during diligence, giving the buyer an opening to re-trade your purchase price right before closing.

To neutralize this timing risk, negotiate an alternative valuation baseline directly into your Letter of Intent. Instead of tethering valuation to a static TTM calculation, anchor the purchase price to a rolling three-year weighted average EBITDA, or establish a contracted Annual Contract Value baseline combined with verified pipeline conversion metrics. Provide a historical audit demonstrating that over the past four years, your revenue has followed identical six-month contraction and expansion rhythms. Proving this historical pattern prevents the buyer from mischaracterizing a routine quarterly timing delay as structural customer churn.

Pay equal attention to your net working capital peg. In lumpy enterprise businesses, working capital balances fluctuate wildly depending on milestone billing dates and deferred revenue receipts. If your peg is established using a simple six-month average during an invoicing peak, you will be forced to leave excess cash on the balance sheet at close. Insist on a twelve-month trailing monthly average to smooth out billing spikes and ensure the working capital target reflects normal business cycle variations.

During your weekly Level 10 Meetings, track leading pipeline indicators on your Scorecard rather than just lagging closed revenue. By showing buyers audited pipeline progression, clear contract renewal rates, and locked backlog schedules, you prove that operational velocity remains healthy, taking their re-trade leverage completely off the table.