How to Increase Business Value Before Selling

Selling a business is often one of the most significant decisions an entrepreneur will make. It’s not just about finding a buyer but positioning your business to maximize its value and appeal while minimizing risks. In this in-depth guide, we’ll explore key strategies to grow, scale, and prepare your business for a successful exit, ensuring you achieve the best possible outcome.

Drawing from an expert discussion featuring insights from business brokerage professional Dane Dantes, this article distills actionable advice to help mid-market business owners navigate the complexities of valuation, financial preparations, and the selling process.

Understanding the "Ugly Baby" Syndrome

One of the first challenges business owners face when preparing to sell is seeing their business through the eyes of a potential buyer. As Dantes puts it, "Everybody thinks they have a wonderfully beautiful baby, but to a buyer, your business may look ugly."

This underscores the need for brutal honesty. Owners must identify and address aspects of their business that may devalue it in the eyes of buyers. Whether it’s messy financial records, reliance on the owner for daily operations, or unclear processes, these "ugly" elements can significantly impact a buyer’s perception of risk and financial potential.

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Key Metrics Buyers Evaluate

Buyers look at a business's value through two primary lenses: financial performance and risk. Understanding these factors is critical to positioning your business effectively for sale.

1. Financial Performance: Focus on Profit, Not Revenue

While revenue shows how much money flows into the business, buyers care more about the profit - what’s left after expenses. As Dantes notes, "The money that stays in the business is what matters most."

Metrics like Seller’s Discretionary Earnings (SDE) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) are key indicators of profitability. Business owners should aim to increase these metrics to maximize value.

2. Risk Factors: De-Risking Your Business

Buyers pay a premium for businesses that pose minimal risks. These risks include:

• Reliance on the Owner: A business heavily reliant on the owner’s expertise is less attractive. Buyers favor businesses with strong management teams and standardized processes.
• Recurring Revenue: Predictable, recurring revenue streams like subscription models or maintenance contracts reduce uncertainty for buyers.
• Stable Financials: Clean and consistent financial records increase buyer confidence. Aligning P&Ls with tax returns, for instance, is essential.
• Employee Retention: A skilled and stable workforce adds value, as buyers want to retain employees post-sale.

Financial Preparation: The Backbone of Business Valuation

A significant portion of the selling process revolves around getting your financials in order. Poor financial documentation not only slows down sales but can also lead to lower valuations. Here are the building blocks to focus on:

1. Mastering Your P&L and Balance Sheet

A Profit and Loss Statement (P&L) is a snapshot of your revenue and expenses, while your Balance Sheet details your assets and liabilities. Both are essential for valuation. Surprisingly, many business owners don’t fully understand their balance sheets, which can lead to confusion during negotiations.

For example, loans, assets, and liabilities are reflected on the balance sheet and not the P&L. Owners often ask why their bank balance doesn’t match their P&L profits, and the answer lies in these financial nuances.

2. Tracking Ad-Backs

Ad-backs are expenses that a new owner wouldn’t incur, such as personal car payments or meals run through the business. Identifying and documenting these expenses can significantly boost the company’s apparent profitability.

3. SBA Loan-Ready Financials

Approximately 85% of small business acquisitions involve Small Business Administration (SBA) loans, which require clear, well-documented financials. Aligning P&Ls with tax returns, tracking inventory, and organizing records are essential steps.

Structuring for a Sale

How your business is structured (LLC, S-Corp, or C-Corp) can impact its saleability and tax implications. While most small businesses operate as S-Corps, those planning to go public may need to restructure as C-Corps. Business exit planning should start early - ideally two years before a planned sale - to allow time to address these considerations.

The Role of Recurring Revenue and SOPs

Recurring revenue streams and Standard Operating Procedures (SOPs) are two of the most effective ways to "de-risk" a business and boost its value. SOPs ensure that the business operates smoothly without the owner, while recurring revenue provides predictable cash flow. Together, these factors can significantly increase a business’s valuation multiple.

Valuation: Multiples and Market Realities

Valuations often rely on industry-specific multiples of revenue or profit. However, these are not one-size-fits-all. Factors such as industry trends, market demand, and unique business assets (like intellectual property or long-term contracts) can push valuations higher.

For example, industries like HVAC and landscaping are currently attracting attention from private equity firms, which are willing to pay more for businesses they can "roll up" into larger entities.

Managing the Transition

To ensure a smooth transition post-sale, sellers must set realistic expectations and communicate effectively with buyers and employees. Buyers often worry about retaining employees, while sellers fear disclosing the sale too early. Confidentiality agreements and carefully timed announcements can mitigate these challenges.

Additionally, buyers should avoid making significant changes immediately after taking over the business. As Dantes advises, "Don’t change a single thing for six months, even if the seller was semi-absentee. You need time to build trust with employees and customers."

Key Takeaways

• Focus on Profitability Over Revenue: Buyers value cash flow and profit more than gross revenue.
• De-Risk Your Business: Minimize reliance on the owner, standardize processes, and build recurring revenue streams.
• Financial Documentation is Critical: Align P&Ls and tax returns, document ad-backs, and track inventory.
• Start Planning Early: Ideally, begin exit planning 1-2 years before selling to maximize valuation and address structural or financial issues.
• Understand Multiples: Valuation is based on industry-specific multiples but can vary depending on risks and unique assets.
• Leverage SBA Loans: SBA loans make acquisitions accessible for buyers but require clean financials and preparation.
• Engage Employees Strategically: Maintain confidentiality and foster a smooth transition to retain key staff.
• Adapt to Market Dynamics: Stay informed about industry trends, such as private equity interest in specific sectors.

Conclusion

Preparing your business for sale is a meticulous process that requires careful financial planning, operational streamlining, and a clear understanding of buyer expectations. By focusing on de-risking your business and presenting it in the best possible light, you can command a higher valuation and ensure a smoother transaction.

Whether you’re looking to sell in the near future or just want to position your business for long-term success, the strategies outlined here will help you create a business that’s not just profitable but also highly desirable to buyers.

Remember, selling a business is more than a transaction - it’s the culmination of your hard work and vision. Approach it with the same dedication and foresight you used to build your business, and you’ll leave behind a legacy of success.

Source: "The Real Strategy Behind Growing, Scaling, and Exiting a Business" - Chantel Ray Finch, YouTube, Jan 22, 2026 - https://www.youtube.com/watch?v=NSG0vaBOy1Q

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