7 min read · 765 words
At a glance
- The number you get at a sale is mostly built in the two to three years before it. By the time you go to market, the earnings are what they are, and you’re just proving them.
- A value build works both halves of the sale-price equation at once: it grows the earnings a buyer multiplies, and it makes those earnings believable so the multiple holds.
- For one $25M manufacturer, the value build moved the picture from a banker’s early estimate of $25M to $35M, on numbers he didn’t trust, to a modeled path from roughly $21M to $52M.
Getting the number you want at exit is an operating result you build over years, not a negotiating trick you deploy at the end. This piece is about what a deliberate 12-to-24-month value build actually does, and why the owners who run one walk in with a bigger, more defensible number than the owners who wait.
Why can’t you build the value at the end?
Because a buyer pays a multiple on a trailing track record, and a track record takes time to establish. Improvements you make in the quarter you go to market barely show in the numbers a buyer reads, and he can tell recent from real. The pricing corrections, the margin gains, the reduced concentration, the owner stepping back: each of those has to age into the trailing period before it counts. Do the work early and it compounds into the track record. Do it late and it reads as a last-minute cleanup a buyer discounts.
That’s why the last year before a sale is the least valuable year to start and the value was made in the years before it, quietly, on purpose.
What does a value build actually do?
It works the two numbers in the sale-price equation together, because a sale price is a multiple times earnings and both are moveable:
- Grow the earnings. Correct the mispriced lines, steer the mix toward what pays, cut the quiet losers, and improve the real margin. This is the offense from the other value levers, run deliberately over time.
- Reduce the risk the multiple prices in. Spread customer concentration, move relationships off the owner, and build the systems that let the company decide without you. Lower risk earns a higher multiple.
- Make the earnings believable. Rebuild the close so numbers are current, load cost so margins are true, document the revenue policy, and build the add-back schedule a buyer will accept. Believable earnings protect the multiple from diligence discounts.
- Prove the trend. Do all of it early enough that the improvement shows as a track record a buyer can see and pay for, not a promise he has to take on faith.
Run together over 12 to 24 months, these turn a company that is worth what it’s worth today into one that is worth measurably more, with the numbers to prove every dollar of the difference.
What did it look like in dollars?
For the $25M manufacturer, the build was concrete and unglamorous. We corrected the pricing that had drifted, worth a swing of roughly $1.8M to $2.1M a year. We rebuilt margin reporting so the winners and losers were visible and the mix could be steered. We fixed the costing and the close so the numbers came in current and true. And we modeled the path forward, quarter by quarter, against a baseline.
The result was a different picture of what the company was worth: not the banker’s early $25M to $35M on numbers the owner couldn’t stand behind, but a modeled path from roughly $21M to $52M on numbers he could. Same company. The difference was earnings grown and made believable, over time, on purpose.
Where this leads
The value build is the sum of the individual levers, run as a program: which customer makes money, pricing, concentration, and mix, on top of numbers a buyer can believe. See how it added up in a redacted walkthrough from roughly $21M to $52M.
The Sellable-Numbers Scan is where the build starts: it finds the value and dollarizes it before you commit a year to the work. In 14 days, with a simple guarantee: at least 3x the Scan fee in owner-accepted value identified, or you pay nothing. A more valuable company and the numbers to prove it is the whole job.
If that’s the question in front of you, book a fit call. Thirty minutes, no pitch.
Russell Fette · Decisive Finance · Creator of Financial Rhythms™