How to Increase the Value of Your Business Before Selling

In short: To increase the value of your business before selling, you need to work on two things a buyer prices separately: the earnings they can rely on, and the multiple they apply to those earnings. Earnings rise through better margins, pricing and cost control, provided the improvement is real and repeatable. The multiple rises as risk falls, through recurring revenue, a wider spread of customers, a capable management team, documented systems and, above all, a business that does not depend on you. Most of these changes take a run of trading history to count, so the work needs to start years before a sale rather than months.

Most owners think about value in terms of growth, and growth matters. But two businesses with the same profit can sell for very different amounts, and the difference almost always comes down to how confident a buyer can be that the profit will continue. This article explains the levers that move value and how buyers view them. It sits within our complete guide to business exit planning, and if you want to understand how a figure is reached in the first place, our guide on how to value a business before you exit covers the methods.

What actually drives the value of a business?

For most profitable owner managed companies, a buyer starts from the earnings they believe the business can sustain and applies a multiple that reflects how risky and how predictable those earnings are. Our guide to EBITDA and how multiples work explains that calculation in more detail.

That gives you two separate levers. Increasing earnings raises value once. Increasing the multiple raises the value of every pound of earnings at the same time. Owners naturally focus on the first, because it is the one they see in the accounts each year. The second is often where more value is waiting, and it is the one buyers spend most of their time assessing.

How do you increase the earnings a buyer will pay for?

Margins and pricing

Many owner managed businesses underprice, particularly where prices were set years ago and have only moved with costs since. Understanding margin by customer, product or service line usually reveals work that is being done for very little, and customers whose value to the business is lower than it looks. Addressing that tends to lift earnings without adding risk.

Cost control that holds up

Costs that genuinely do not need to be there are worth removing. Costs the business needs are not. A buyer will add back the cost of a role the owner covers unpaid, maintenance that has been put off or investment that has been deferred, so cutting them to improve the figures shortly before a sale rarely achieves anything except a harder conversation in due diligence.

Earnings a buyer can verify

Profit only counts if the buyer believes it. Clean records, consistent monthly figures and clear evidence for any adjustments mean the earnings you present are the earnings a buyer prices from. Reliable management accounts are the foundation for that, and they also give you the information to see which of these levers matters most in your own business.

How do you increase the multiple a buyer applies?

The multiple reflects risk and expected growth. Every factor that makes future earnings more certain pushes it up.

Consider a Sunderland facilities management company with steady profit. If most of its work comes through rolling contracts with a broad client base and an operations director runs the contracts, it will attract a very different multiple from an identical business whose work comes through annual tenders that the founder personally wins. The accounts may look the same. The risk does not.

Several of these drivers depend on how the business is run day to day rather than on its finances. Our business advisory team works with owners on them, and well implemented systems make processes easier to document and hand over.

How do you reduce dependence on yourself?

This is the single largest drag on value for most owner managed businesses, and the hardest for owners to see, because the business has always worked with them in it.

Buyers do not usually refuse to buy a business that depends on its owner. They price the risk. That tends to show up as a lower multiple, more of the price deferred, or an earn out that keeps you working in the business for years after the sale and ties part of your proceeds to results you no longer fully control.

What changes a buyer's view is evidence rather than intention. Results that held steady during periods when you were not involved, customers whose main contact is someone other than you, contracts and supplier terms held in the company's name, and managers who make decisions without escalating them all count. So do arrangements that give key people a reason to stay after you leave, and protection for the business if something unexpected happens to a shareholder, which our guide to shareholder protection covers.

None of this can be demonstrated quickly. A buyer needs to see the business performing without you over a sustained period, which is why reducing dependence is usually the first thing to start and the last thing to finish.

If you want to know how dependent your business currently looks to a buyer, our exit planning team can assess it alongside the other drivers above.

Which improvements are not worth making before a sale?

Not every change adds value, and some reduce it. Cutting costs the business needs, pushing sales into the final year at lower margins, starting new ventures that distract management, or making large investments that will not have time to prove themselves can all depress the figures a buyer examines or raise questions they will want answered.

Buyers are also wary of improvements that appear suddenly. A strong final year after several flat ones is more likely to be treated as an exception than as the new normal. The improvements that carry the most weight are those that have been in place long enough to be part of how the business simply runs.

How long does it take to increase the value of a business?

It depends on where you start, but most meaningful changes need a sustained period of trading history before a buyer gives them full credit. Better reporting can be in place relatively quickly. Building a management team, broadening the customer base and moving revenue onto recurring terms take considerably longer.

That makes the useful question not how much the business is worth today, but what it could be worth by the time you want to sell and what would need to change to get there. Our business growth calculator shows how improvements in the underlying drivers change the picture, and our business valuation calculator gives an indicative starting point. If you are still deciding on the timing and shape of your exit, our guide on how to create a business exit strategy and the Exit Readiness Scorecard are good next steps.

How can Pulse help?

We work with owners over the years before a sale, not just at the point of it. That starts with understanding what your business is worth now and which drivers are holding the figure down, then working through margins, pricing, reporting, customer concentration and owner dependency in the order that will make the biggest difference within your timescale.

Because we see your numbers every month, we can show you how each change is affecting value as it happens rather than waiting for a buyer to tell you. Where you need a formal figure, our business valuation service sets it out with its assumptions stated.

For the wider picture, read our exit planning guide, or speak to our team about what would increase the value of your own business.

FAQs

What makes a business more valuable to a buyer?

Earnings a buyer can rely on, and as little risk as possible attached to them. Recurring or contracted revenue, a wide spread of customers, a management team that runs the business without the owner, documented processes and reliable monthly reporting all make a buyer more confident that profit will continue, and buyers pay more for that confidence.

How long does it take to increase the value of a business?

Usually longer than owners expect. Buyers judge a business on a run of trading periods, so an improvement only adds full value once it has been sustained long enough to look normal rather than arranged for the sale. Some changes, such as better reporting, show quickly. Others, such as reducing reliance on the owner or on a few large customers, take considerably longer.

Does increasing profit always increase the value of a business?

Not always. Profit that comes from a single exceptional year, from cutting costs the business genuinely needs, or from deferring investment is usually discounted or reversed by a buyer. Profit that is repeatable, well evidenced and not dependent on the owner adds value. The quality of the earnings matters as much as the amount.

How do I make my business less dependent on me?

By moving the work, relationships and decisions that currently rely on you to other people and systems, then proving over a sustained period that the business performs without you. Buyers look for evidence such as stable results while you are absent, customers who deal with your team rather than with you, and managers who have both the authority and the incentive to stay.

Is recurring revenue more valuable than one off sales?

Generally, yes. Revenue that is contracted or renews predictably is easier for a buyer to forecast, which reduces risk and usually supports a higher valuation than revenue that has to be won again each year. The terms matter too, because contracts that can be cancelled easily or that end on a change of ownership give a buyer less comfort.

Should I invest in my business before selling it?

Only where a buyer is likely to value the investment more than it costs you. Spending that improves future earnings or reduces risk can add value, but it may also reduce profit in the periods a buyer examines, and some investments will not have time to prove themselves before a sale. Each decision is worth modelling against your timescale before you commit.