“Jim, how do I make my business worth more before I sell it?”
I get asked this question constantly. And the answer depends entirely on what’s limiting your valuation right now. But after helping dozens of Michigan business owners improve their valuations over the years, I’ve identified eight strategies that consistently move the needle.
Most owners see 30% to 70% valuation improvements over two to three years when they focus on these areas. Not through accounting games or creative bookkeeping. Through legitimate improvements that professional buyers actually recognize and pay for.
First, understand how buyers evaluate your business
Before we talk about improvement strategies, you need to understand how buyers actually think about valuation. Most small to mid-sized businesses get valued using a multiple of EBITDA. That’s earnings before interest, taxes, depreciation, and amortization. Basically, your operating profit.
Let’s say you’re generating $500,000 in EBITDA. A buyer might pay 3 times that or 6 times that. Anywhere from $1.5 million to $3 million for the exact same earnings.
What creates that massive difference? Risk. Buyers pay low multiples for businesses that look risky. High multiples for businesses that look stable and predictable.
Every improvement strategy I’m about to share reduces the risk buyers perceive when evaluating your business. Lower risk equals higher multiple. Higher multiple equals more money in your pocket.
Strategy one: Improve your EBITDA margins
This one’s straightforward but often overlooked. Since most valuations use EBITDA multiples, improving your EBITDA directly increases value.
Here’s the math. If you’re doing $3 million in revenue with $500,000 EBITDA, that’s about a 17% margin. If you can push that EBITDA to $600,000, same revenue, now you’re at 20% margin.
That extra $100,000 in EBITDA, at a 4x multiple, just created $400,000 in additional business value. Same revenue. Better margins. Way more valuable business.
How do you improve EBITDA? Well, you can work on revenue optimization. Most Michigan business owners are scared to raise prices. But here’s what I’ve seen over and over. If you raise prices 3% to 5% annually, most customers just accept it. They’re used to inflation. They’re used to cost increases. The ones who complain loudly were probably not your best customers anyway.
You can also work on cost reduction. Negotiate better terms with suppliers. Eliminate waste in your operations. Improve productivity so you’re not paying for wasted time. Reduce overhead systematically without cutting into quality or service.
And you can focus on operational efficiency. Streamline processes to reduce time. Automate repetitive tasks that don’t need human touch. Improve quality to reduce rework and waste. Better inventory management so you’re not tying up cash in stuff sitting on shelves.
For Michigan manufacturers competing in automotive supply chains, margin improvement often requires demonstrating value beyond just price. Document your quality improvements. Show your on-time delivery performance. Quantify how you solve problems for customers. This justifies price increases that improve margins.
Strategy two: Show consistent growth over multiple years
Buyers pay premiums for businesses showing reliable growth. Not explosive one-year spikes that might not repeat. Steady, consistent growth over three to five years.
A business that’s been flat for three years might sell for 3 or 4 times EBITDA. Same business growing 8% to 10% annually might sell for 4 to 5 times. Growing 15% annually might hit 5 to 6 times or even higher.
Growth signals business health. It shows there’s momentum. It suggests the business will continue performing after you leave.
Don’t wait until you’re ready to sell to start building this track record. Start now. Show three to five years of year-over-year revenue increases. Show customer count growing. Show gross profit growing. Show EBITDA growing. When all these metrics move together in the same direction, buyers trust the pattern.
How do you grow strategically? Expand into adjacent markets. Launch complementary products or services that leverage what you already do well. Target new customer segments while maintaining your existing base.
Organic growth beats acquisition-based growth for valuation purposes. Buyers trust businesses that grow naturally more than ones that grew by buying other businesses.
Strategy three: Reduce your involvement dramatically
This might create the biggest valuation swing of any single factor. Businesses where the owner is essential typically sell for 2 to 3 times EBITDA. The exact same business with strong management running things might sell for 5 to 6 times.
On $500,000 EBITDA, that’s the difference between $1 million and $3 million. Owner dependency is extremely expensive.
Be honest with yourself. Can your business operate for a month without you? Do customers insist on dealing with you personally? Are you still the primary salesperson? Do all major decisions require your approval? Could your team handle a crisis without you?
The more “yes” answers you have, the more owner-dependent you are, and the less your business is worth.
I worked with a service business owner a few years ago who was convinced his customers would leave if he stepped back. “Jim, they only want to work with me. If I’m not involved, they’ll go elsewhere.”
We spent 18 months systematically transferring relationships. Introducing his managers in meetings. Having them join customer calls. Gradually shifting communication. You know what happened? Not a single customer left. They cared about the quality of service, not specifically about who provided it. But we had to prove that gradually.
The way to fix owner dependency is hire or promote a strong second-in-command. This costs real money. In Michigan, you’re looking at $80,000 to $120,000 for someone good. But this role typically creates $300,000 to $800,000 in additional valuation. Maybe more.
You also need to transfer customer relationships over 12 to 18 months minimum. Document your decision-making frameworks so your team can follow them. And cut your hours gradually, maybe 10 to 15 hours per month, forcing your team to handle more on their own.
Strategy four: Diversify your customer base
Heavy reliance on a few big customers kills valuations. If one customer represents 25% of your revenue, you’ve got a problem. If three customers represent 60% of revenue, you’ve got a bigger problem. If your top customer is over 40% of revenue, many buyers just walk away.
This concentration risk directly reduces what buyers will pay. I’ve seen it tank deals or slash offers by 30% to 50%.
The fix is active customer acquisition targeting smaller customers. Growing relationships with existing smaller customers. Expanding into new market segments. Maybe exploring new geographic territories.
But be realistic about timing. Customer diversification takes 24 to 36 months minimum. First year you’re building pipeline and landing initial new customers. Second year you’re growing those relationships and measurably reducing concentration. Third year you’re hitting target diversification levels.
I worked with a manufacturer last year where one automotive OEM represented 52% of revenue. That’s terrifying to buyers. We spent a year pursuing smaller customers in adjacent industries. Got the concentration down to 38%. Still not ideal, but way better than 52%. That improvement alone added about $400,000 to his sale price.
Strategy five: Build real management team capability
Buyers evaluate management teams carefully. Strong teams command premium valuations because buyers know the business can run without constant owner oversight.
You need functional leadership across operations, finance, sales, and administration. And these can’t just be people who follow orders. They need to make decisions, solve problems, think strategically, and lead their areas independently.
Sometimes you can promote from within. Sometimes you need external hires. It depends on whether your people have the capability and the desire to step up.
The challenge for Michigan businesses is competitive compensation. You might need to pay $20,000 more in salary to get or retain quality management. But that investment typically creates $100,000-plus in additional valuation.
I tell owners to invest in their people’s development. External training and education. Mentoring and coaching. Progressive increases in responsibility. Clear career paths. If you develop your team properly, they become major assets that buyers value.
Strategy six: Get your financials clean and transparent
Buyers need clean, clear, accurate financial information to pay premium prices. If your books are a mess, they’re either going to walk away or discount heavily to account for the uncertainty.
What does clean financial management look like? Monthly closings within 10 days. Reconciled balance sheets. Accurate inventory valuations. Clear accounts receivable aging. Proper calculation of adjusted EBITDA with all add-backs documented. Regular financial reporting with key metrics tracked. Budget versus actual comparisons. Cash flow forecasting.
If you don’t have a good CPA, get one. Quality accounting support costs maybe $2,000 to $5,000 monthly for most Michigan businesses. This investment typically returns 5 to 10 times in improved valuation because buyers pay premiums for financial clarity.
I’ve seen buyers walk away from otherwise good businesses because the financials were so messy they couldn’t trust the numbers. Don’t let that be you.
Strategy seven: Document everything you know
Transferable systems and protected intellectual property create real valuation advantages.
Everything needs documentation. Your operational processes. Training materials. Quality control procedures. Customer service protocols. Any proprietary processes or formulas you use. Trade secrets. Trademarks and brand assets. Customer data and relationships.
For Michigan manufacturers, document machine setup procedures and specifications. Quality inspection criteria. Supplier qualification and management. Customer technical requirements.
For service businesses, document service delivery workflows. Client onboarding procedures. Project management approaches. Quality assurance methods.
Don’t create elaborate manuals nobody will read. Keep it practical. Process name and purpose. Step-by-step instructions. Common problems and how to solve them. Key contacts if help is needed.
Simple formats get used. Complex formats gather dust. The goal is making your knowledge transferable, not creating a library nobody looks at.
Strategy eight: Create recurring revenue if possible
This is the holy grail of valuation improvement. Recurring revenue dramatically improves multiples because it makes future cash flow predictable.
A business with one-time project revenue might sell for 3 to 4 times EBITDA. Same business with 50% recurring revenue might sell for 4 to 5 times. If you can get to 80% recurring revenue, you might hit 5 to 7 times or even higher.
How do you create recurring revenue? Convert project work to retainer agreements. Many customers actually prefer predictable monthly costs over variable project billing. Offer service contracts for maintenance, support, or subscriptions. Michigan manufacturers can offer ongoing equipment servicing.
Sell consumable products that customers reorder regularly. Create membership models with exclusive access or priority service.
But don’t expect instant results. Transitioning to recurring revenue takes 12 to 24 months typically. Launch the recurring option alongside project work. Offer incentives for customers to switch. Grandfather existing customers gradually. Make recurring the default for new customers.
Track your recurring revenue percentage quarterly. Show the increasing trend to buyers.
Start with what matters most for your business
You can’t tackle all eight strategies simultaneously. Prioritize based on your biggest valuation weakness right now. What’s limiting your multiple most? Which strategy addresses that most directly? What can you implement with resources you have now versus needing to hire or invest?
Most Michigan business owners should start with financial transparency and owner dependency. These are foundational. They enable everything else.
I help business owners implement these programs over two to three years. Results typically show 40% to 70% valuation increases. On a $2 million business, that’s $800,000 to $1.4 million in additional value.
I offer free valuation improvement assessments. We’ll identify your biggest opportunities. Call me at (248) 957-0300.
Every month you delay is money left on the table. A $2 million business improving 50% over three years creates $1 million in additional value. That’s about $28,000 per month you’re waiting.
These strategies work. I’ve seen them succeed dozens of times. But they take time to implement. Start today. Your future self will thank you.