When it comes to selling a business, many owners assume that a healthy profit and long history are enough to command a strong sale price. After years of hard work, it’s natural to believe your legacy will translate into a valuable asset.
But the truth is, most small businesses that get listed never actually sell. Anecdotal evidence in Australia suggests that only about 30 per cent of listed businesses find a buyer, and from what I hear in the industry and see on the ground, that stacks up.
The main reason? Buyers look at businesses through a different lens. They’re not just buying what the business has done, they’re buying what it can do without you.
Here’s what I’ve learned in 15+ years of being on both sides of the fence as an owner and as an advisor: valuation isn’t just about profit. In fact, the numbers are only part of the picture.
What drives value
1. Recurring or predictable revenue and profits
Buyers pay more for revenue they can count on: ongoing contracts, high client retention, or repeatable demand patterns. The more stable the income, the less risk they see. The due diligence process also looks closely at the current financial year. If the numbers don’t stack up, the business risks being downgraded.
Savvy buyers will start asking questions, and in most cases, they’ll take a risk-averse position, reducing the valuation and proposing mechanisms like earn-outs, clawbacks, or holdbacks to protect themselves.
2. Clean, defensible financials
Strong financials aren’t just about showing a profit. They need to be clear, consistent, and easy to explain. Many owners run personal or one-off expenses through the business, which muddies the waters.
I can hear small-business owners booing in the background – I hear you. I’ve run businesses too, and yes, we all do it. But “clean” doesn’t mean perfect. It just means you can easily adjust profits with relevant add-backs of non-operational or non-business expenses without needing to write War and Peace to explain it. It should be simple to follow and easy to accept.
3. Low owner dependency
If the business can’t function without you, in buyer’s eyes, it’s not a business. It’s a job with overheads. Sure, some buyers are looking for an owner-operator model, but they’re few and far between. Serious buyers want operational independence. That means documented systems, a capable team, and decision-making structures that don’t hinge on you being in the room.
Even if it’s not fully independent of you yet, the more you can demonstrate that the business can run without you, the more value you’ll unlock.
4. Transferable systems and processes
Businesses that are systemised, tech-enabled, and well-documented are far easier to transition and scale.
If your business runs on the logic of “everyone knows what they’re doing” or it’s all in your head, that’s a major red flag for any seasoned buyer. You don’t need fancy software or complex systems. What you do need is a clear org chart, documented roles and responsibilities, and a step-by-step playbook for how things get done. Think of it as an instruction manual for your business.
What doesn’t add much (or any) value
1. “We’ve been around for 20 years”
Longevity doesn’t equal value unless it’s supported by strong systems, consistent performance, and relevance in today’s market. Age without evolution can actually be a red flag.
2. “We’re really busy”
Busy doesn’t mean profitable or sustainable. In fact, if your business is constantly stretched but struggling to scale, systemise, or delegate, it often signals inefficiency.
3. “Our customers love us”
Client loyalty is great but unless it’s documented in retention data, repeat business metrics, or locked-in contracts, it’s not quantifiable. Buyers want proof, not promises.
4. “We’ve got so much potential”
Every business has potential. What buyers pay for is performance. Unless there’s a clear, realistic path to unlocking that potential with supporting data or infrastructure it won’t add value to your sale price.
The bottom line
If you’ve ever run a business, you know how much blood, sweat, and tears go into building it. But valuation isn’t a reward for hard work. It’s a reflection of how transferable, stable, and future-ready your business is in the eyes of a buyer.
The good news? The same things that increase valuation also make your business easier and more enjoyable to run today. When your business ticks these boxes, you’re not only likely to achieve a higher price multiple, but also benefit from a smoother transaction, fewer buyer objections, and often a faster sale. Even if you’re not selling tomorrow, start building as if you were. You’ll create a more valuable business either way and give yourself real options when the time comes.
