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What Buyers Actually Care About: The Reality of Business Valuations

What Buyers Actually Care About The Reality of Business Valuations
“My business is worth more than that. You don’t understand the potential.” We hear this all the time…
I get it. You see what your business COULD be. You see the vision. You see the upside.
But here’s the hard truth: Buyers don’t care about your potential.
They care about what you’ve ALREADY DONE.

This is the reality check every business owner needs before they hit the market. Because the gap between what owners think their business is worth and what the market actually pays is usually 30-50%.

And that gap is painful.

What Buyers Actually Evaluate

When a buyer looks at your business, they’re asking one question: “What is the risk of this investment?”
Everything they evaluate comes back to that question. Here’s what they actually look at:

1. Historical EBITDA (Not Projections)

What they care about: Your last 3 years of actual EBITDA.
What they don’t care about: Your projections for the next 3 years.
Why it matters: History is predictable. Projections are hope.
A buyer will pay a multiple of your HISTORICAL EBITDA. Not your projected EBITDA.
Example:
  • Your business: $500K EBITDA (last 3 years average)
  • Your projection: “We’ll hit $750K next year”
  • Buyer valuation: $500K × 4.5 = $2.25M
  • NOT: $750K × 4.5 = $3.375M
Red flag: If your EBITDA is declining or flat, buyers will assume it will continue to decline or stay flat. They won’t bet on your turnaround.

2. Recurring Revenue (Not One-Time Deals)

What they care about: Revenue that’s contracted, recurring, or predictable.
What they don’t care about: One-time projects or deals.
Why it matters: Recurring revenue is stable. One-time deals are risky.
A business with 80% recurring revenue commands a 30-50% premium over a business with 20% recurring revenue. Same EBITDA, different risk profile.
Example:
  • Business A: $500K EBITDA, 80% recurring revenue
  • Business B: $500K EBITDA, 20% recurring revenue
  • Business A valuation: $2.5M (5x multiple)
  • Business B valuation: $1.5M (3x multiple)
Red flag: If your revenue is project-based or one-time, buyers will discount heavily.

3. Customer Concentration (Not Customer Potential)

What they care about: How diversified your customer base is.
What they don’t care about: New customers you’re planning to add.
Why it matters: Customer concentration = risk. If you lose one customer, does the business collapse?
Buyers will analyze:
  • % of revenue from top 3 customers
  • Customer churn rate
  • Customer retention rate
  • Customer lifetime value
Example:
  • Business A: Top 3 customers = 25% of revenue, 5% churn rate
  • Business B: Top 3 customers = 60% of revenue, 15% churn rate
  • Business A valuation: $2.5M (5x multiple)
  • Business B valuation: $1.2M (2.4x multiple)
Red flag: If you’re dependent on a few large customers, buyers will heavily discount.

4. Owner Dependency (Not Owner Vision)

What they care about: Can the business run without you?
What they don’t care about: Your vision for the future.
Why it matters: If the business depends on you, it’s not worth much. Buyers are buying a business, not a job.
Buyers will analyze:
  • % of revenue directly from owner
  • Key person dependencies
  • Team capability and depth
  • Systems and processes
Example:
  • Business A: 10% owner dependency, strong team, documented systems
  • Business B: 60% owner dependency, weak team, no documentation
  • Business A valuation: $2.5M (5x multiple)
  • Business B valuation: $1.0M (2x multiple)
Red flag: If your business falls apart without you, buyers will assume massive risk.

5. Systems & Processes (Not Heroics)

What they care about: Is your business run on systems or on the owner’s effort?
What they don’t care about: How hard you work.
Why it matters: Systems scale. Heroics don’t.
Buyers will ask:
  • Are your processes documented?
  • Can someone else run them?
  • Is there an org chart?
  • Are there standard operating procedures?
Example:
  • Business A: All processes documented, team trained, owner can take a month off
  • Business B: Owner does everything, no documentation, business stops without owner
  • Business A valuation: $2.5M (5x multiple)
  • Business B valuation: $1.0M (2x multiple)
Red flag: If your business is built on your personal effort, buyers will heavily discount.

6. Industry Trends (Not Your Optimism)

What they care about: Is your industry growing or declining?
What they don’t care about: Your belief that things will turn around.
Why it matters: Industry trends are macro. Your optimism is micro.
If your industry is declining, no amount of optimism will change the valuation multiple.
Example:
  • Growing industry: 4.5-5.5x EBITDA multiple
  • Stable industry: 3.5-4.5x EBITDA multiple
  • Declining industry: 2.5-3.5x EBITDA multiple
Red flag: If your industry is in decline, buyers will be cautious.

What Buyers DON’T Care About

Let me be crystal clear about what doesn’t move the needle:
❌ Your vision for the future – Buyers don’t pay for your dreams.
❌ Potential synergies with their business – That’s their problem, not your valuation.
❌ Improvements you PLAN to make – They only care about what you’ve done.
❌ New products you’re developing – Show them when they’re generating revenue.
❌ Market opportunities you see – Prove it with revenue first.
❌ How hard you work – Effort doesn’t equal value.
❌ Your emotional attachment – They don’t care what you paid for it.

The Valuation Gap: Why It Exists

Here’s why most owners think their business is worth more than the market says:
Owner’s perspective:
  • I built this from nothing
  • I know what’s possible
  • I see the upside
  • I work incredibly hard
  • I have relationships buyers don’t have
Buyer’s perspective:
  • Show me 3 years of EBITDA
  • Show me recurring revenue
  • Show me a diversified customer base
  • Show me a team that doesn’t depend on you
  • Show me documented systems
The gap between these two perspectives is usually 30-50%.
Example:
  • Owner thinks: $3M
  • Market says: $2M
  • Gap: $1M (33% difference)
This gap is painful. But it’s also an opportunity.

How to Close the Valuation Gap

If you understand what buyers actually value, you can work to close the gap BEFORE you sell.
Here’s how:
1. Increase EBITDA
  • Grow revenue
  • Reduce expenses
  • Improve margins
  • Eliminate one-time costs
2. Build Recurring Revenue
  • Convert project-based work to contracts
  • Build subscription models
  • Create retainer relationships
  • Lock in multi-year agreements
3. Diversify Customers
  • Add 10-20 new customers
  • Reduce dependence on any single customer
  • Build customer retention programs
  • Improve customer lifetime value
4. Reduce Owner Dependency
  • Train your team
  • Document your processes
  • Delegate decision-making
  • Build a management team
5. Document Systems
  • Create standard operating procedures
  • Build an org chart
  • Train your team
  • Prove the business can run without you
6. Position for Industry Trends
  • If your industry is growing, emphasize that
  • If your industry is stable, emphasize stability
  • If your industry is declining, show your competitive advantage

The Bottom Line

Buyers don’t pay for potential. They pay for performance.
The gap between what you think your business is worth and what the market says it’s worth is usually 30-50%.
But that gap is closeable. If you understand what buyers actually value, you can work to close it BEFORE you sell.
That’s the difference between a $1.8M exit and a $3M exit.
Same business. Different preparation.

Next Steps

Ready to understand what your business is actually worth?
  1. Get a professional valuation – Understand the market reality
  2. Identify your value gaps – Where are you losing points with buyers?
  3. Create a plan to close them – What can you do in the next 12-24 months?
Get Your Professional Valuation
About Lion Business Advisors
We help business owners understand what their business is actually worth and create plans to increase that value. Our valuation-first approach means we start with reality, not hope. If you’re thinking about selling, let’s talk about your true market value.

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