Selling a Business

What Buyers Actually Pay For

Stop guessing what moves your multiple. Learn the short list of attributes buyers underwrite, why each one is worth a specific number of turns, and which of them you can still change.

  • Advanced
  • 9 min total
  • 12 chapters

What decision this helps you make: Where to spend the next twelve to twenty-four months of effort so that the same earnings sell for a materially higher multiple.

What this topic is

A working map of how acquirers actually price private companies: the earnings base they underwrite, the multiple they apply to it, and the specific, nameable attributes that move that multiple up or down. It separates the things owners believe drive value — revenue growth, industry excitement, years in business — from the things that appear in an investment committee memo.

Why it matters

Value in a private company is the product of two numbers, and owners spend nearly all their attention on the smaller lever. Adding $250k of earnings to a business trading at 5x adds $1.25M. Moving that same business from 5x to 6.5x on $3M of earnings adds $4.5M. The multiple is set by risk, transferability, and buyer competition — all of which are addressable, and none of which appear on the profit and loss statement.

Who should learn it

Owners two to five years from a sale, operators building toward one, and advisers who need to explain to a client why a profitable business is being offered a mediocre multiple.

What you will understand

  • The four buyer types and what each one is actually buying
  • Why the earnings base itself is contested, and how SDE differs from adjusted EBITDA
  • The attributes that move the multiple, with realistic direction and magnitude
  • Which value drivers can be changed in eighteen months and which cannot

Prerequisites

Common misconception

"Buyers pay for growth." They pay for durable, transferable cash flow they believe will still be there after you leave. Growth is one input to that belief and often not the strongest one. A business growing 30% a year on three customers and a founder-led sales motion will be priced below a flat business with 300 customers, contracted revenue, and a general manager who has been running it for four years — and the buyer will be right.