Expert Workshop: What Actually Determines What Your Business Is Worth
Most business owners think about their exit the wrong way.
They focus on profit, on growing EBITDA, cutting costs, pushing revenue. And while that matters, it's only one piece of a much larger puzzle. At our June workshop, Shawn Walsh, CEO of Encore Strategic, walked us through the real mechanics of business valuation: the eight strategic drivers that determine what a buyer will actually pay for your company, and why the multiple matters far more than the profit number alone.
Here's what the room learned.
The Math That Changes Everything
Let's say your business generates $800K in EBITDA. At a 3.5x multiple, that's a $2.8M exit. Not bad.
But that same business, same profit, with the right value drivers in place can command a 7.1x multiple. That's $5.6M. Double the exit price, without touching EBITDA.
The multiple is where real wealth is created. And unlike profit, it's something you can systematically improve by working on seven specific areas of your business.
The Eight Drivers of Business Value
Shawn walked us through each driver and what buyers actually look for:
1. Financial Performance
Yes, EBITDA matters. But it's the floor, not the ceiling. Think of it as the ticket that gets you in the room: the other seven drivers determine the price once you're there.
2. Monopoly Control
Do you have a differentiated position in your market? Buyers pay more for businesses that aren't easily replicated. You don't need proprietary technology, you need a unique value proposition. Liquid Death sells water. What makes your offer distinct?
3. Switzerland Structure
Single points of failure destroy valuation. That means no key employee the business can't survive without, no vendor relationship that could walk away and take the company with it, and no whale client representing more than 20% of revenue. (Buyers get nervous above 12%. Above 20% is a serious red flag.)
4. Hub and Spoke Dependency
If you're the center of all client relationships, sales, operations, and product decisions, that's a problem. Buyers aren't acquiring a high-functioning operator. They're acquiring an asset. If you leave and the business wobbles, the multiple goes down. The fix: hire an account manager to own relationships before you hire your next salesperson.
5. Customer Score
Net Promoter Score is the language buyers trust. One question: "On a scale of 0–10, how likely are you to refer us?" A score of 50+ is strong. Apple sits around 65. But Shawn made one counterintuitive point worth noting: a sudden drop in response rate can signal impending churn more than a low score ever will.
6. Growth Potential
Buyers aren't just buying what you've built. They're buying what it could become. Can your systems handle 5x the current demand? Are there identifiable, believable paths to growth? If yes, buyers will pay for the future, not just the present.
7. Recurring Revenue
This is the holy grail of valuation. One-time service revenue gets valued at 0.1–0.2x. Recurring revenue (subscriptions, retainers, managed service agreements) gets valued at 7–8x in competitive industries. The IT industry figured this out when it shifted from break-fix to managed services. The question for every service business: what could you convert to a monthly agreement?
8. Key Person Dependency
If the business can't function without you, it's not a business: it's a job you own. Documented, repeatable processes are the solution. They're also the single highest-ROI investment most business owners never make.
Strategic Buyers vs. Financial Buyers
One of the most important distinctions Shawn made: not all buyers are the same, and the gap in what they'll pay can be enormous.
A financial buyer (think private equity) looks at your EBITDA and applies a standard multiple. They're buying cash flow.
A strategic buyer: a competitor, a company expanding into your market, a business that needs exactly what you've built, sees your company as a puzzle piece that solves a specific problem. They'll pay a premium multiple because the synergy makes it worth it. Shawn shared an example of a business that received $10–12M from financial buyers and $55M from a strategic buyer. Same business. Very different buyer.
The implication: knowing your strategic buyer before you go to market can dramatically change your outcome.
The "Rembrandt in the Attic" Concept
Every business has overlooked assets that could be disproportionately valuable to the right buyer. A specialized certification. Proprietary data. A key license. Deep expertise in an underserved niche.
Most owners don't think to surface these because they feel ordinary; they've lived with them for years. But to a strategic buyer who's been trying to build that capability for a decade, it can be worth millions.
The exercise: make a list of what your business has that would be hard or slow for a competitor to replicate.
Start Before You're Ready to Sell
Shawn's core message wasn't about exit planning as a future event. It was about building differently, starting now.
Most owners don't choose their exit day. Life does: burnout, health events, a partner wanting out, an unexpected offer. If you're not ready, you'll accept whatever's on the table. If you've been building with the end in mind, you'll have options.
The businesses that command the highest multiples aren't always the most profitable. They're the ones that de-risk themselves, scale predictably, and become strategic assets to the right buyer.
That work starts long before the sale conversation.
Don't Miss the Next Workshop
This is the kind of conversation we have every month.
Every workshop, we bring in an expert and go deep on one thing that actually moves the needle for business owners. No fluff, no sales pitches, just the kind of financial and strategic clarity that usually costs you a consulting fee.
If you missed this one, you don't have to miss the next.
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