The buyer's valuation model is heavily reliant on a capitalization of earnings model that ignores our major growth trajectory. How do we use our V/TO three-year picture and guideline transaction data to force them to use a discounted future earnings model that reflects our true trajectory?

Question

Tyler Smith · Accepted Answer

A capitalization of earnings model is backward-looking and assumes your historical cash flows will continue at a flat, nominal growth rate. This model heavily penalizes companies that have recently invested in scalability, automated workflows, and management infrastructure.

To force the buyer to use a forward-looking discounted future earnings model, you must prove that your projected growth is highly predictable and structurally supported. Bring your V/TO® to the negotiation table. Your three-year picture, one-year plan, and quarterly Rocks are not just internal planning tools: they are historical evidence of your team's ability to set targets and hit them.

Show the buyer your past five years of V/TO® history alongside your actual financial performance to prove your forecasting accuracy.

Combine this operational track record with guideline transaction data from comparable companies in your industry that achieved higher multiples based on forward earnings. By showing that other strategic buyers in your space value high-growth companies using future earnings projections, you shift the burden of proof to the buyer.

When you demonstrate that your leadership team has a proven track record of hitting their numbers, the buyer can no longer dismiss your projections as speculative. This allows you to demand a valuation that reflects the future cash flows your automated platform will generate.