Most business owners assume that the more revenue they generate, the more their business is worth. But here's the truth: buyers don't buy revenue. They buy cash flow. And if your margins are thin or your overhead is bloated, even a million-dollar top line won't translate into a business anyone wants to buy.

The Big Misconception: Revenue = Value

This is one of the most common myths we see during our Benchmark Assessments. Owners assume their company is worth 1x or 2x revenue. But in the real world, buyers pay based on cash flow. Specifically, they're looking at Seller's Discretionary Earnings (SDE), the total financial benefit an owner gets from the business. A business making $1M in revenue but only $100K in SDE will be far less attractive (and less valuable) than a leaner operation making $600K in revenue and $250K in SDE.

Real Example: $1M Revenue, Zero Value

I recently completed a valuation for a service-based business generating over $1M annually. But after reviewing the numbers, it was clear the business wasn't profitable. The business owner rarely reviewed her books, and increasing overhead costs and decreasing margins over the last couple of years eroded the value. The owner was barely taking home a livable wage, making it nearly impossible to sell.

The owner was faced with two options. Overhaul the business and restore profitability, or liquidate the physical assets.

The Real Driver: Profitability and Clean Books

What buyers want is confidence. They want to know your profit is real, repeatable, and well-documented. That means having clean, professional

financials—not just revenue reports, but profit margins, trendlines, and consistent income. If you're running a lot of personal expenses through the business or using a shoebox-style approach to accounting, you're eroding your company's value without realizing it.

This is where exit planning comes in. Document everything so that when a buyer makes an offer, you are ready to present the real value of the business.

Quick Win: Know Your Numbers

One of the fastest ways to increase your valuation is to review your numbers on a biweekly basis and use the information to make good decisions. That starts with understanding your sources of revenue, expenses, and overhead. Once you have a clear understanding of how those impact every job, service, or product you deliver, you should start gathering information about how your competitors use price to compete against you.

Several of the businesses I've worked with had their prices listed 20%-30% below those of their nearest competitor. Trying to substantially undercut your competition's pricing is a quick way to eliminate profit and diminish the value of your company.

Need help?

In our Benchmark Assessment, we work with owners to understand their business at a deeper level and make data driven decisions to enable growth. For example, after completing an assessment, a business owner in a specialized niche of the landscaping industry discovered several gaps that, once addressed, positioned his company to grow from a $500K valuation to over $1 million in under 12 months.

Book your Benchmark Assessment: a 90-minute strategy session where we'll identify the hidden bottlenecks holding your business back and map out specific moves to increase its value, scalability, and future readiness.

You can't grow what you don't measure. Let's get clear on where you stand and how to take control of what's next.