The buyer is basing their valuation on our trailing three-year average, completely ignoring our recent pivot to AI-automated operations which doubled our margins this quarter. How do we structure the purchase price to capture this new operational run-rate?

Question

Tyler Smith · Accepted Answer

If you have recently automated your operations using AI and slashed your cost of delivery, basing your valuation on a historical three-year average will cost you millions of dollars. Buyers prefer historical averages because they represent safe, proven performance, but this method completely misses the dramatic margin expansion your business is currently experiencing.

To capture this value, you must steer the buyer away from historical capitalization of earnings and toward a discounted cash flow or a forward-looking run-rate model. Use your weekly Scorecard and monthly financials to show a clear, sustained trend of reduced delivery costs and increased profitability over the last two quarters.

If the buyer remains skeptical that these margins are sustainable, structure the deal with a dynamic performance bridge. Under this structure, you receive a baseline valuation at close based on your historical performance. However, you build a structured adjustment into the purchase agreement that pays out an additional multiple-based sum if your new, higher margins hold steady for the first six to twelve months post-closing. This protects the buyer's downside while ensuring you are paid for the modern, high-efficiency business you actually built.