I sat across from a manufacturing owner last year. Good guy, built his business over 25 years. He wanted to retire in three years and figured his business was worth maybe $2 million.
“Jim,” he said, “is that realistic?”
I looked at his financials. “Honestly? Right now you’d be lucky to get $1.3 million. But if you’re willing to work on some things over the next three years, we could probably get you to $2.5 million, maybe more.”
He thought I was bullshitting him. But we got to work, and 36 months later, he sold for $2.55 million. Same business. Same industry. We just fixed what buyers actually care about.
Here’s what most Michigan business owners don’t understand. Increasing your business value isn’t about working harder or growing revenue faster. It’s about reducing the risk buyers see when they look at your operation.
Understanding how buyers actually value businesses
Before we talk about improvements, you need to understand how buyers think. They’re looking at multiples of your EBITDA. That’s earnings before interest, taxes, depreciation, and amortization. Basically, your operating profit.
Let’s say your business generates $500,000 in EBITDA. A buyer might pay 3 times that, or 6 times that. That’s anywhere from $1.5 million to $3 million for the exact same earnings.
What makes that difference? The multiple. And the multiple is all about risk.
A business that looks risky gets a low multiple. Maybe 2.5 or 3 times earnings. A business that looks stable and predictable gets a high multiple. Maybe 5 or 6 times earnings.
Same profit. Wildly different sale prices.
I’ve seen Michigan business owners spend years trying to boost revenue by 20% when they could have doubled their sale price by improving their multiple instead. It’s honestly frustrating to watch because the multiple improvement is usually easier than the revenue growth.
Year one is about getting your house in order
The first year isn’t glamorous. You’re cleaning up financials and writing down everything you know. Most owners hate this part. But it’s absolutely essential.
I had a client a few years ago, ran a profitable service business. When I asked to see his financials, he handed me a shoebox full of receipts and his QuickBooks that hadn’t been reconciled in eight months. “I know it’s messy,” he said. “But I know where the money is.”
Sure. He knew. But buyers won’t trust that. They need clean, accurate financials they can verify. Without that, you’re not selling anything.
So year one, you’re hiring a decent CPA if you don’t already have one. You’re separating personal expenses from business expenses completely. I mean completely. No more running your kid’s soccer team fees through the business checking account. Buyers see that and immediately distrust everything else.
You’re also going back and cleaning up the previous two years of financials. Reconciling accounts. Documenting what your actual compensation is versus what the business really earns. Creating what buyers call “normalized” or “adjusted” EBITDA.
This cleanup costs maybe $5,000 to $15,000 depending on how messy things are. I know that sounds like a lot. But buyers are going to require it anyway during due diligence. Might as well do it now while you have time to fix any problems they’d find.
The other big project in year one is documentation. Everything in your head needs to get on paper somehow. How do you onboard a new customer? How do you handle quality issues? Who do you call when that one machine breaks down?
I tell owners to start with their most critical process. Write it down step by step like you’re explaining it to someone who’s never seen it before. Then move to the next critical process. After you’ve documented maybe 20 or 30 key processes, you’ve captured most of what makes your business run.
For Michigan manufacturers, this documentation is especially valuable. You’ve got specialized knowledge about automotive quality requirements or industrial processes that buyers can’t find anywhere else. That knowledge is worthless if it leaves when you leave. Document it and it becomes a real asset someone will pay for.
Year two is where the real value gets built
This is where things get uncomfortable for most owners. Year two is about making yourself less important to the business. And I’m not going to lie to you, this part is hard.
I worked with a guy in Grand Rapids who’d run his business for 22 years. He was in every meeting, made every important decision, and personally managed the three big customer relationships. When I told him we needed to change that, he looked at me like I’d suggested setting his building on fire.
“Jim, my customers only want to deal with me. If I step back, they’ll leave.”
Maybe. But you know what definitely won’t happen? You won’t sell your business for what it’s worth. Because buyers aren’t paying premium prices for a business that collapses the day you leave.
So year two, you’re hiring or promoting someone to be your second-in-command. Operations manager, general manager, COO, whatever you want to call it. Someone who can make decisions and run things when you’re not there.
This costs real money. In Michigan, you’re probably looking at $80,000 to $120,000 in salary for someone good. I know that hurts when you’re used to making those decisions yourself for free. But here’s the math that matters: that hire typically creates $200,000 to $500,000 in additional sale value. Maybe more.
You’re also starting to transfer customer relationships. And you have to be systematic about this. You don’t just suddenly stop talking to customers and hope your team picks up the slack. You introduce your key managers in meetings. You have them join calls. You gradually shift communication so customers get comfortable working with your team, not just you.
This process takes 12 to 18 months minimum. I’ve never seen it work faster. The owners who try to rush it usually end up losing customers or creating chaos.
The other big focus in year two is implementing real systems. Not technology for technology’s sake. Actual systems that capture how things work. Maybe that’s a CRM that tracks your sales process. Maybe it’s project management software that shows how work flows through your shop. Maybe it’s just better financial reporting so you’re actually looking at numbers monthly instead of whenever you remember.
Whatever systems you implement, the goal is the same. Make your knowledge and expertise part of the company’s capabilities, not trapped in your personal experience.
Year three is about proving it all works
By year three, you’ve cleaned up financials and started building management depth. Now you need to demonstrate that everything actually functions without you running the show.
This year is about growth and optimization. You want buyers to see a business that’s getting stronger, not just maintaining. Even modest growth makes a huge difference in valuation multiples.
Here’s something most owners don’t realize. A business that’s been flat for three years might sell for 3 or 4 times EBITDA. The exact same business growing 10% annually might sell for 5 or 6 times EBITDA. That growth signal tells buyers the business has momentum and future potential.
I’m not saying you need explosive growth. Honestly, 8% to 12% annual growth sustained over a few years is plenty. What buyers trust is consistency. They want to see that the growth is real and repeatable, not some one-time fluke.
If you’ve got customer concentration problems, year three is when you really need to address them. I worked with an auto parts supplier last year where one customer represented 47% of revenue. That’s terrifying to buyers. They see that and immediately discount the value because what happens if that customer leaves?
We spent a year actively pursuing smaller customers. He didn’t love it because small customers are more work per dollar of revenue. But we got his concentration down to about 32% for the top customer. Still not ideal, but a lot better than 47%. That improvement alone added probably $300,000 to his sale price.
What actually drives value in a buyer’s mind
Let me tell you what buyers really care about, based on 30+ years of watching these deals happen.
Revenue predictability matters more than revenue size. A business with recurring revenue or long-term contracts sells for way more than the exact same business doing one-time project work. If you can shift even 30% or 40% of your revenue to recurring, you’ll see your multiple jump.
How much you work matters enormously. I know this sounds backwards. You’d think buyers would want an owner who’s deeply involved and knows everything. They don’t. They want a business that runs without the owner. I’ve watched businesses sell for 40% less than they should have because the owner was essential to everything.
Your management team strength is huge. Having a really solid operations manager or general manager who can run things creates massive value. That $100,000 salary you’re paying that person? It probably creates $300,000 to $600,000 in additional sale value. Maybe more for larger Michigan businesses.
Customer diversity protects value. The 80/20 rule should not apply to your customer base. If your top 10 customers represent more than 50% of revenue, you’ve got a problem. Buyers will either walk away or slash their offer to account for the concentration risk.
Documentation makes your expertise transferable. Everything you know that’s sitting in your head? That walks out the door when you leave. Everything that’s documented? That’s an asset buyers will pay for. Simple as that.
Growth trajectory over the past few years shows buyers they’re buying something with momentum. Even if it’s modest growth, showing three years of consistent improvement means way more than showing one year of explosive growth that might not repeat.
Your profit margins tell buyers whether you have pricing power and operational efficiency. If you can improve your margins even 2 or 3 percentage points during this value-building period, it has huge impact on final valuation.
And market position matters. If you’re one of the top players in your niche, that’s worth real money. Michigan business owners should highlight regional dominance or specialized expertise that’s hard for competitors to replicate.
Let me tell you about a real situation
I’m going to share a real client story, though I’m changing details for confidentiality. But the numbers and timeline are accurate.
This was a manufacturing company, about 25 employees, doing $3.2 million in revenue. Owner was pulling about $420,000 in EBITDA. He was working 65 hours a week minimum. Three customers made up 62% of his revenue. Nothing was documented. The business was him.
When we did an initial valuation, we came up with about $1.3 million. That’s roughly 3.1 times his EBITDA. He wanted at least $2.5 million to retire comfortably.
First year, we hired an operations manager for $95,000. Cleaned up the financials completely. Started documenting critical production processes. Implemented a basic CRM system.
Honestly, first year was chaos. The owner had to learn how to let his new manager actually manage things. Revenue stayed flat at $3.2 million. EBITDA actually dropped to $380,000 because of the new manager salary. He called me twice ready to quit the whole thing.
Second year got better. We transferred two of the three major customer relationships to the operations manager. Got them ISO-ready with documented quality management. Owner got his hours down to maybe 35 per week. He actively pursued 15 smaller customers to diversify.
Revenue grew to $3.6 million. EBITDA recovered to $445,000. Customer concentration improved to 48% for the top three. Still not great, but moving the right direction.
Third year was when everything clicked. Owner was down to 25 hours weekly. Revenue hit $4.1 million. EBITDA reached $510,000. Top three customers were 38% of revenue. All operations were documented. The management team was running things.
Final valuation came in at $2.55 million. That’s 5.0 times EBITDA. He exceeded his goal.
From $1.3 million to $2.55 million. That’s 96% value increase in three years. Same guy, same industry, same location. We just fixed what buyers care about.
Don’t sabotage yourself with these mistakes
I’ve watched plenty of owners mess this up. Here are the mistakes that kill value-building efforts.
Some owners cut all investments to boost short-term EBITDA before sale. They slash marketing, defer equipment maintenance, run with skeleton crews. Buyers aren’t stupid. They see through this immediately and they either walk away or slash the offer.
Other owners wait until one year before exit to start any of this. Then they try to cram three years of work into six months. It doesn’t work. Everything feels rushed and fake. Buyers can tell.
Then there are owners who can’t let go. They keep inserting themselves in every decision even after they’ve hired good people. The business never develops independence from the owner. Value stays stuck.
And finally, some owners try to do all this without professional help. Look, this isn’t DIY territory. You need a good CPA for financial cleanup. You need a consultant or coach for operational improvements. You need an attorney for legal cleanup. You need someone like me for overall strategy.
Good advisors cost money. But the ROI is typically 5 to 10 times their fees. Maybe more.
Let’s talk about your specific situation
I help Michigan business owners implement these value improvement programs. The process takes three to five years, but results are typically 40% to 70% value increases.
I offer free business value assessments. We’ll sit down and I’ll review where you are right now. What’s your estimated value? What specific factors are limiting your multiple? What improvements would have the biggest impact for your particular situation? What’s a realistic timeline?
Call me directly at (248) 957-0300. I answer my own phone.
If we end up working together, we create a customized plan for your specific situation. Monthly check-ins keep you on track. Quarterly assessments measure progress. Most clients work with me for two or three years, then we transition to exit planning. By that point, their business value has usually increased 50% to 100%.
Don’t wait another month
Here’s the simple math. A $2 million business that improves 50% over three years creates $1 million in additional value. That’s $333,000 per year. About $28,000 every single month you wait.
These strategies work. I’ve seen them improve valuations dozens of times for Michigan business owners. But they require time to implement properly.
Every month you delay is money left on the table. Start building your business value today. Your future self will be very happy you did when you’re depositing that much larger exit check.