Our revenues are strong and we have great margins, but why are business brokers saying my business is not ready for a premium acquisition multiple?

Question

Tyler Smith · Accepted Answer

Strong revenue and great margins are excellent, but they only tell part of the story. Buyers do not pay for past performance: they pay for the predictability of future cash flows. A high valuation multiple is awarded to companies that have built a repeatable, scalable business engine that does not depend on the owner. Buyers look closely at your operating system. If they see that you are using EOS® to run your business, they know there is a structured cadence of accountability. They look at your Level 10 Meeting™ to see if the team can solve problems without you. They look at your history of hitting quarterly Rocks to see if the organization is disciplined. They also look at customer concentration. If any single customer represents more than fifteen percent of your revenue, that represents high risk. To command a premium multiple, you must show a clear three year picture on your V/TO®, a fully populated Accountability Chart with no open critical seats, and documented systems. You are selling a machine that prints money, not your personal industry expertise.