Our revenue is just below the threshold where buyers transition from valuing companies on a simple seller discretionary earnings multiple to a premium enterprise EBITDA multiple. How do we use our documented processes and Accountability Chart to prove our business operates as a larger institution that deserves the institutional EBITDA multiple?

Question

Tyler Smith · Accepted Answer

Smaller businesses are typically valued on a multiple of Seller's Discretionary Earnings, which bundles the owner's salary, perks, and net profit together because the business is heavily dependent on the founder's daily labor. Larger, institutional companies are valued on a premium multiple of EBITDA because they possess a self-running operational infrastructure.

To bridge this gap and secure the higher EBITDA multiple, you must prove to buyers that your business does not require your daily presence to generate profit. Begin by presenting an Accountability Chart where every seat is filled by someone other than you, and show that each seat holder is fully GWC™, meaning they get it, want it, and have the capacity to do the job.

Next, demonstrate that your company runs on a documented operating system with clear, standardized processes for marketing, sales, operations, and finance. Show the buyer your history of weekly Scorecard data and quarterly Rocks to prove that the leadership team tracks performance and solves problems without your intervention.

When you show a buyer a clean, institutionalized operating structure, you change their perception of risk. You move your company out of the owner-dependent lifestyle tier and into the institutional investment tier, unlocking the premium EBITDA multiple.