Insights
9 numbers a buyer checks before making an offer on your business
Before naming a price, a buyer runs nine numbers: adjusted EBITDA or SDE, top customer concentration, the size of your add-back schedule, gross margin trend, three-year earnings trend, recurring revenue share, owner compensation and hours, net working capital, and maintenance capex. Each one either supports your multiple or quietly discounts it.
A buyer does not fall in love with your business. A buyer builds a model. Before anyone says a number out loud, someone on the other side has pulled nine figures out of your financials and asked whether each one supports the price they were considering or argues against it.
The list below is ordered by how much a weak answer typically costs you, from most expensive to least. The top three can move your value by a full turn of the multiple or more. The bottom three usually move the check by a few percent, which on a seven figure deal is still real money.
1. Adjusted EBITDA or seller's discretionary earnings
This is the base everything else multiplies from, which is why it sits first. For smaller owner-operated businesses buyers use seller's discretionary earnings, which includes one owner's salary. Above roughly $1M in earnings the market switches to adjusted EBITDA, which does not add back a market-rate salary for the person doing your job. Owners routinely quote the SDE number to a private equity buyer who is calculating EBITDA, then feel blindsided by the offer. Know which metric your buyer pool uses before you form a price expectation, because the same business can carry two legitimate earnings numbers that differ by a couple hundred thousand dollars.
2. Your largest customer as a percentage of revenue
A buyer calculates this before they finish their first coffee. Under 10 percent is a non-issue. Between 10 and 25 percent draws questions about the relationship and the contract. Above roughly 30 percent, the conversation changes shape: you will usually still get an offer, but a meaningful slice of the price moves into an earnout or holdback tied to that account still being there in a year. Buyers are not being difficult. They are pricing the possibility that the customer was loyal to you personally. Diversifying takes 18 to 24 months, which is exactly why this number belongs on your desk long before a buyer sees it.
3. How much of your earnings comes from add-backs
Two businesses can both show $1.5M of adjusted EBITDA. One got there with $1.4M of real operating profit plus $100K of clean adjustments. The other got there with $900K of profit plus $600K of add-backs. Buyers price those very differently, because every add-back is a claim that needs proof. As a rough working rule, once adjustments exceed 15 to 20 percent of adjusted earnings, buyers start discounting the whole schedule rather than arguing item by item. Personal auto, owner health insurance, and a one-time legal settlement survive scrutiny with documentation. Vaguely labeled "owner expenses" do not.
4. Gross margin, and which direction it is moving
Revenue growth with flat or falling gross margin tells a buyer you bought that growth. It shows up in pricing pressure, a worse customer mix, or input costs you have not passed through. Buyers pull three years of gross margin by month or quarter, not just annually, because the annual figure hides the trend. A business holding 42 percent gross margin while growing 12 percent a year prices better than one growing 25 percent while margin slides from 45 to 37. Margin stability is also the single best evidence that your pricing power is real rather than a story in a management presentation.
5. Three years of revenue and earnings, by month
Buyers care about trajectory and volatility, not just the most recent twelve months. Monthly data shows them seasonality, whether a soft quarter was an anomaly or the start of something, and how much the business swings. Two businesses averaging $1.2M of earnings are not equal if one delivers between $1.1M and $1.3M every year and the other bounces from $400K to $2M. Predictable earnings support a higher multiple because a lender will finance them and a buyer can plan around them. If your last three years are genuinely lumpy, be ready to explain each swing with specifics.
6. Recurring or repeat revenue as a share of the total
A buyer wants to know how much of next year's revenue already exists on closing day. Contracted recurring revenue is the strongest form. Subscription, service agreements, and maintenance contracts come next. Reliable repeat purchasing from a stable customer base counts too, though it is worth less than a contract. Project or transaction businesses that start each year near zero are absolutely sellable, but they get valued on the strength of the pipeline and the backlog rather than on assumed continuity. If you have recurring revenue, isolate it in your reporting. Buried inside one revenue line, it earns you nothing.
7. Owner compensation, hours, and what only you do
This is where buyers quantify owner dependence, and they do it with numbers. What are you paid, what would it cost to replace you at market, how many hours a week do you actually work, and which relationships or decisions route only through you. A business where the owner works 50 hours a week across sales, pricing, and operations is being valued as a job with a profit attached. A business where a general manager runs daily operations and the owner works 15 to 20 hours is valued as an asset. Same earnings, different multiple, and the gap is often meaningful.
8. Net working capital, averaged over twelve months
Nearly every deal is priced cash-free and debt-free with a working capital target, usually the trailing twelve month average of accounts receivable plus inventory minus accounts payable. Deliver less than the target at closing and the purchase price is reduced dollar for dollar. This is not a negotiation about your value, it is arithmetic, and it routinely surprises owners by six figures. Two things follow. Know your monthly working capital pattern before you go to market, and do not stretch payables or push collections in the months before closing, because the average is what you will be measured against.
9. Maintenance capex against depreciation
Buyers compare what you actually spend to keep the business running against your depreciation expense. When capex has run well below depreciation for several years, the equipment, vehicles, or systems are aging and the buyer is inheriting a bill. They will size that bill and take it out of the price, or ask for a holdback against it. This hits asset-heavy businesses hardest: manufacturing, trucking, construction, anything with a fleet or a plant. Deferred maintenance is one of the few value problems that gets more expensive every month you wait to address it.
What to do with these numbers
Pull these nine numbers for your own business this quarter, before anyone else does. Three outcomes are possible for each one, and all three are useful.
- The number is strong. Document it clearly so a buyer can verify it fast, and make sure it appears in your reporting rather than sitting in your head.
- The number is weak but fixable in 12 to 24 months. That is your readiness plan, and it usually returns more than another year of revenue growth would.
- The number is weak and structural. Then you go to market with a clear, honest explanation and a buyer pool that prices it fairly, rather than getting surprised in diligence.
The expensive version of this exercise is discovering all nine for the first time during diligence, after you have signed an exclusivity agreement and lost the ability to walk. If you want a sense of how the market would read your business today, that is what a sell-side advisor should be able to tell you in one conversation.
Frequently asked questions
How do buyers calculate the multiple they apply to my earnings?
The multiple comes from comparable completed transactions in your industry and size range, then gets adjusted up or down based on your specific risk profile. The nine items above are the adjustment factors. A business in an industry where similar companies trade at four to five times adjusted EBITDA might land at three and a half with 40 percent customer concentration and heavy owner dependence, or at five and a half with diversified contracted revenue and a management team in place. Both the earnings figure and the multiple are levers, which is why readiness work compounds.
Can I still sell if several of these numbers look bad?
Yes. Businesses with concentration, owner dependence, and messy add-back schedules sell every month in Texas. Weak numbers change the price, the structure, and which buyers will engage, not whether a sale is possible. What actually kills deals is a weak number nobody disclosed that surfaces in diligence, because the buyer then discounts for the problem and for the surprise. Knowing your own nine numbers lets you price them into your expectations, position them honestly, and choose a buyer pool that can absorb them.
How long does it take to improve these numbers meaningfully?
Some move quickly and some do not. Clean accrual monthly financials with a documented add-back schedule is a 3 to 6 month project. Reducing owner dependence by hiring and genuinely delegating takes 12 to 18 months. Diversifying real customer concentration takes 18 to 24 months because you have to win and retain new accounts, not just quote them. Catching up deferred capex is a budget decision. As a general rule, start two years before you want to sell, and if that window has passed, focus on the fast items and go to market with competition instead.
Do buyers look at my tax returns or my internal financials?
Both, and the relationship between them matters more than either alone. Internal accrual financials show a buyer how the business actually performs month to month. Tax returns are the independent check. When the two do not reconcile, everything you presented becomes suspect, and lenders in particular will slow down or step away. Before you go to market, make sure your internal statements tie to your filed returns with an explainable bridge. This is general information rather than tax advice, so work it through with your CPA.
Know your nine numbers before a buyer does
Every one of these is knowable today. Owners across McKinney and North Texas come to us a year or two ahead of a sale wanting an honest read on what a buyer would pay right now and which of these nine numbers is costing them the most. Financial readiness work happens through Thryve; the sale itself runs through Optima.
More on valuation and process in the insights library.
Nothing here is legal, tax, or accounting advice.