The five things that add most to your business valuation before you sell

Four of us bought a small Australian business that sold standing desks online. It was called UpDownDesk, we paid £20,000 each, and it was turning over about £11,000 a month.

When we sold, monthly revenue was roughly thirty times that. The buyer came through a broker, the deal took about two months from first conversation to money in the bank, and my shares sold for seven figures.

Two things about that sale are worth passing on. The buyer dug hardest into three subjects: the finances, the suppliers, and how the business ran day to day. And when my three partners wanted more money than was on the table, the buyer bought my shares and my partners stayed in the business.

The second point matters most. The deal still went through, because the company did not depend on any one of us.

We bought it doing about £11,000 a month. We sold it doing roughly thirty times that.

How a buyer actually prices your company

Most private companies are bought for a multiple of their annual profit, usually measured as EBITDA (earnings before interest, tax, depreciation and amortisation). The profit is a fact. The multiple is the buyer's judgement of risk, and it is where almost all the movement is.

It matters because sales fail over small differences. A long-running US survey of deal advisers finds that a third of sale processes never complete, that price is the most common reason, and that the gap between the two sides is most often only 11 to 20%.¹

One US adviser, drawing on DealStats and IBBA transaction data, has put rough numbers on how far each factor moves the multiple.² They are American and mid-market, so read them as a guide to what matters most.

Here are the five, in the order I would work on them.

01Profit a buyer can trust

Before a serious buyer pays, their accountants take your profit apart. It is called a quality of earnings review. They strip out one-off income, question every adjustment you have added back, and test whether last year can be repeated. Whatever survives is the number the multiple is applied to.

Our buyer went through all the finances, and went further than the accounts. They wanted to understand the suppliers and the day-to-day running of the business as well.

What to do:

• Produce monthly management accounts within ten working days, every month.
• Keep personal spending out of the company completely.
• Write down who your suppliers are, what you pay and what the terms are.
• Keep a short list of genuine one-off costs, with the invoices.

Give this 12 to 24 months. A buyer wants to see the record.

02Revenue that repeats

A buyer is paying today for profit they hope to receive tomorrow. Revenue that renews by itself, through subscriptions, contracts, retainers or habitual reordering, is the closest thing to a guarantee they can get. One Forbes Business Council contributor calls it the single most reliable driver of the multiple,³ and it is the largest factor in the adviser data above.²

A desk is a one-off purchase, so UpDownDesk never had subscription income. What we built were several steady sources of orders: an affiliate programme, buying-guide sites that sent us customers, and paid search.

If your product can be sold on contract or subscription, do that first. Offer annual terms. Measure what percentage of last year's customers bought again and report it every month, because a buyer will ask.

03A business that runs without you

If customers call you, staff wait for you and the important knowledge lives in your head, a buyer is being asked to buy a job whose current holder is about to leave.

There were four of us at UpDownDesk. I ran all the marketing. My partners covered logistics, finance and the chief executive role, and they filled the gaps where I was weak.

That split mattered at the end. When my partners wanted more money, the buyer bought my shares, kept the three of them, and carried on.

The buyer bought me out and my partners stayed. That only works when the business does not need you.

What to do: give named people real authority over sales, operations and finance, and let them run those areas for at least a year before a sale. Write the important processes down. Where a task follows the same steps every time, put it into a documented system, including AI tools where they fit, so that it can be inspected by a buyer and keeps working after you leave.

04No single point of failure

One customer who accounts for a quarter of your sales is a risk a buyer will price heavily.² The same applies to anything the business cannot survive losing: one supplier, one salesperson, one advertising account, one marketplace.

At UpDownDesk we spread where orders came from. This is what we put in place after buying it:

• A rebuilt Shopify store, then a lot of detailed conversion work on it.
• A high-end affiliate programme. We approached the sites that publish standing-desk buying guides and brought them in, which moved us up their recommendations.
• Google Ads.
• Reviews. We sent a lot of review requests and managed our reputation closely.
• A 60-day money-back guarantee, and much plainer selling of what made the desks better.

What to do: list everything that brings in more than 15% of revenue, or that would stop you trading if it disappeared. Then reduce each one. Add a second channel. Win more mid-sized customers. Put long contracts around the relationships you cannot dilute.

05A growth story with proof

Buyers pay for the future, but only the part of it they believe. A steep forecast with nothing behind it is ignored. Growth that has already happened, by methods the next owner can see and repeat, is worth real money.

Going from about £11,000 a month to roughly thirty times that came from the list in the section above. Every item on it is something a buyer can open up and inspect: the store, the affiliate accounts, the ad account, the reviews.

What to do: start forecasting now and keep the forecasts. Two years of predictions you then met is the most persuasive document in a sale. Show where the next growth comes from and what you have already done to test it.

Use a broker, and make buyers compete

We found our buyer through a business broker, WebsiteClosers. It was the second company I sold through them; the first was a seven-figure Amazon brand.

A broker's job is to put the business in front of more than one serious buyer. The same adviser data suggests a competitive process lifts the price by 20 to 35%.² It does not replace the five things above. A broker can find buyers for a well-prepared business. They cannot make an unprepared one worth more.

What most advice on this gets wrong

I read several of the articles that come up for this question. They agree, broadly, on the same factors. Their weaknesses are consistent too:

• No ranking. Five to nine tips are presented as equals. Repeat revenue and concentration move the price far more than tidy paperwork.
• No numbers, or numbers without a source.
• No timescale. Most of this takes one to two years.
• A sale process presented as the whole answer, often by firms that earn fees for running one.

The order to do it in

1. Now: get monthly accounts clean and on time. Everything else is judged through them.
2. Months 1 to 6: identify every single point of failure and start reducing the largest.
3. Months 3 to 12: convert repeat work into contracts and begin reporting retention.
4. Months 6 to 18: hand real authority to named people and document how the business runs.
5. Throughout: forecast every quarter, and keep the record of what you predicted against what happened.

Would I do anything differently on UpDownDesk? No.

If you want to know where your own business stands today, the Exit Score on our home page takes two minutes and names the factor holding your value down.