You have built a successful firm. Revenue is climbing, clients are happy, and you are taking home a healthy distribution every quarter. But to a Private Equity sponsor, "healthy distributions" are irrelevant if the engine producing them relies entirely on you. This is the distinction between a lifestyle business and an investable asset.
The market for professional services is bifurcating. While high-performing, tech-enabled consultancies are trading at 9.7x to 15.2x EBITDA, the median middle-market service firm sits closer to 7.5x. The delta between those two numbers is rarely about revenue growth; it is about governance integrity and transferable value.
The data is brutal. Research shows that 42% of canceled deals fail due to valuation disagreements triggered by diligence findings. Sponsors do not pay for "trust me" financials. When they open the hood and find "tribal knowledge" instead of documented processes, or owner-centric client relationships, they do not just lower the price—they walk away.
For "Scaling Sarah," the founder who is still the lead rainmaker and chief firefighter, the goal is not just to grow. It is to structurally detach the revenue from her personal calendar.
To move from a median 7x multiple to a premium 12x platform valuation, you must subject your firm to a merciless internal audit 18 months before you go to market. We measure readiness across three vectors: Financial Rigor, Commercial Durability, and Operational Independence.
Do not wait for the buyer to normalize your EBITDA. If you are running personal expenses through the business or aggressively categorizing CapEx, you are eroding trust. Your target benchmark is a clean, adjusted EBITDA margin above 20%.
Valuation is a function of predictability. Data indicates that firms with recurring revenue models (subscriptions, retainers) command 2-3x higher multiples than project-based peers. If your revenue resets to zero every January 1st, you are selling a job, not a business.
If you left for a month, would the firm grow or stall? Founder dependency is the single largest destroy of value in the lower middle market. Sophisticated buyers apply a 20-30% discount to firms where the founder controls key client relationships.
You cannot fix governance overnight. This is a 6-to-8 quarter march toward institutionalization.
Implement a real ERP. Move off QuickBooks if you are over $10M revenue. Establish a data room that is always ready. Your ability to produce a "Churn Analysis by Cohort" report in 24 hours signals more competence than your pitch deck ever will.
Hire a COO or President who is not you. This is the most painful check you will write, but it is the only way to prove the business works without your intervention. Your role must shift to Chairman/Strategy, removing yourself from critical path delivery.
Hire a third-party firm to conduct a sell-side Q of E. Uncover the skeletons before the buyer does. If you find a $500k accounting error, you fix it quietly. If the buyer finds it, they cut the purchase price by $3M.
The market is awash in capital, but it is starving for quality. Capital is discerning. The difference between a failed process and a life-changing exit is rarely the quality of your service—it is the quality of your infrastructure. Build the asset, not the lifestyle.
