How to raise the number before you sell

Here’s the arithmetic that owners underuse. A business earning $500,000 a year at a 3× multiple is worth about $1.5 million. The same business at 4× is worth $2 million — same profit, half a million dollars more, purely because a buyer sees less risk in it. The multiple is where the fastest gains hide, and it’s the part most sellers ignore until the year they list.

What actually moves the multiple

A buyer pays a higher multiple for a business that will keep earning without you and won’t spring surprises. In plain terms:

Get yourself out of the middle

If the business can’t run without you — if you’re the top salesperson, the key relationship, and the person who knows how everything works — you’re selling a job, not a business, and buyers pay job prices. Building a management layer and stepping out of daily operations is the single biggest lever most owners have.

Make the revenue recurring and contracted

Repeat revenue under signed, assignable contracts is worth far more than the same dollars won project by project. Recurring revenue tells a buyer the earnings will still be there next year.

Fix customer concentration

If one client is 40% of your revenue, a buyer sees a business that’s one phone call from a cliff, and discounts accordingly. Broadening the base before you sell removes that discount.

Clean up the financials

Reviewed statements, no personal expenses run through the company, clear and defensible normalizations. Buyers discount numbers they can’t trust — and they can’t pay you for profit they can’t see.

Write down how the business works

Documented systems and processes, and a team that stays after closing, tell a buyer the thing they’re buying will actually transfer. Key-person risk — including yours — comes straight off the multiple.

The legal side of the multiple (the part I do)

A surprising amount of the multiple is legal housekeeping — and all of it surfaces in due diligence, at the worst possible moment, if you don’t deal with it first. Every item below that’s clean removes a reason for the buyer to chip the price or hold money back:

• Assignable contracts. A key customer or supplier contract that terminates on a change of control can gut the value of the deal. These get fixed quietly, well before diligence.
• IP the company actually owns. Assignments in place from founders and contractors; trademarks registered. Buyers pay for what you can prove you own.
• A clean corporate record. An up-to-date minute book, share register, and filings. A messy minute book delays closings and spooks buyers — and it can’t be reconstructed overnight.
• A shareholder agreement that works. Ambiguity or conflict among the current owners is a risk a buyer would rather avoid than price.
• Litigation and contingent liabilities resolved, or at least quantified and disclosed.
• Employment in order. Proper agreements, correct contractor-versus-employee classification, no termination landmines.

None of this is glamorous. All of it shows up as a higher multiple and a smoother close, because you’ve removed the buyer’s reasons to be nervous.

Why two years, not two months

Most of these can’t be faked at the eleventh hour, and buyers can tell staged from real. Recurring revenue needs a track record. Owner-independence has to be proven over time. The minute book has to be brought current before anyone looks. And if you’re counting on the lifetime capital gains exemption, some of its conditions have to be met for a period before the sale — miss the window and the tax bill is the difference. Starting early is the whole advantage. It’s the rare project where the work and the payoff both compound.

If a sale is somewhere on your horizon — even a few years out — the best time to walk through this list is now, while there’s still time to move the number.