We are introducing a proprietary software tool to our traditional services business, but buyers are still valuing us as a low-margin agency. How do we segregate our service and software business units under our EOS Accountability Chart to force the buyer to apply a blended or sum-of-the-parts multiple?

Question

Tyler Smith · Accepted Answer

If you are running a mixed business model with both professional services and proprietary software, buyers will naturally default to valuing your entire company at a lower services multiple. To command a premium, you must operationally and financially decouple these two business units.

First, update your EOS Accountability Chart to create two distinct divisions. Each division must have its own dedicated seat leaders, operational workflows, and software development resources. When a buyer looks at your organization, they must see that your software product does not rely on your consulting staff to function or scale.

Second, separate your financial statements. You must produce segment-level profit and loss statements that clearly allocate revenues, direct costs, and overhead between the services and software divisions. This allows buy-side auditors to see the high gross margins of your software division without them getting muddied by your services delivery costs.

Third, use your V/TO to outline distinct growth strategies and target markets for each division, proving to the buyer that they are buying two complementary but independent engines.

My recommendation is to pitch your transaction as a sum-of-the-parts valuation. Force the buyer to apply a standard services multiple to your consulting EBITDA, and a premium recurring revenue multiple to your software-as-a-service annual recurring revenue. Decoupling these units before going to market is the only way to prevent your high-margin software value from being swallowed by your lower-margin services footprint.