In today’s business environment, valuation isn’t just about growth—it’s about growing profitably. Investors and acquirers care about profitability because it directly impacts both a company’s current earnings and its ability to sustain growth in the future.
As a rule-of-thumb, companies with under $20M in revenue tend to get discounted offers from potential buyers. The reason is simple: smaller companies carry higher risk for a buyer. To hedge that risk, buyers typically offer lower multiples.
This is the time of year when we set goals for ourselves and our businesses. Business goals often include targets for revenue and profit growth. You may set goals around improving your culture or enhancing customer experience. However, the one goal that rules them all is a goal that many business owners fail to set with clarity and confidence: business valuation.
For most business owners, 80% of their personal wealth is tied up in their business. This is a staggering figure, yet many entrepreneurs don’t take the necessary steps to understand or optimize the value of their most important asset. Sure, they may have invested in retirement accounts or real estate, but the business itself remains the financial engine driving their future.