3 steps to maximize your exit valuation

You don’t buy a business planning to own it forever.

At some point, you’ll want to sell, and how much you walk away with depends on the work you do between acquisition and exit.

Today, you’ll learn the three factors that determine whether you sell for 2X or 4X cash flow.

(Quick note: Some people think you can flip a business in 6 months for massive profit. That usually only works for distressed turnarounds and takes years of brutal work. For most deals, plan on 3-5 years minimum.)

Factor #1 - Clean, lendable financials (3+ years)

Buyers need bank financing, and banks won’t lend if your financials are a mess.

Many owners minimize reported profit to reduce taxes, so their P&Ls show strong cash flow but tax returns show almost zero profit…

And that’s a dealbreaker for lenders.

What you need:

• At least 3 years of tax returns that match your P&Ls and accurately reflect profit

• Consistent year-over-year growth in revenue and cash flow

• Clean books with no personal expenses mixed in

A good rule of thumb is to start reporting profit properly at least 3 years before you plan to sell.

Factor #2 - Management independence

This is the biggest factor in your valuation multiple.

Small businesses sell for 2-4X cash flow, and management structure determines where you land:

1. Owner-dependent = 2X multiple (you work in the business daily)

2. Management-run = 4X multiple (GM runs operations, you’re hands-off)

That’s literally double the sale price for the same cash flow.

Factor #3: Documented systems

Buyers pay a premium for businesses that run like machines.

That looks like using modern software (CRM, accounting, payroll), having SOPs for every critical function, customer service protocols, and training processes for new hires.

Two identical businesses can sell for drastically different prices purely based on systems.

The math that makes it worth it

Let’s say you buy a business for $1M at 3X cash flow, which means it’s generating $333K annually.

Over the next 3-5 years, you improve management and systems to achieve 4X multiple status, while growing cash flow to $500K through optimization.

Now you can sell for $2M (4X the $500K cash flow).

After paying off your acquisition loan, you walk away with over $1M in profit.

That’s the power of buying with exit in mind from day one.

If you’re ready to start your acquisition journey, and want to get occasional emails from me with interesting deal opportunities…

Fill out the quick form below:

👉 I want to buy (or invest as a silent partner into) a small business

Or, if you’re looking to sell a small business, fill out the short form below instead:

👉 I want to sell my small business (and I’m actively looking for buyers)

Onward,

— Ben Kelly