06.01.25 -- Last week, I wrote about what it costs when you're the system — when your business relies too heavily on you to function. This week builds on that idea. Once your business runs more smoothly, the next step is asking: is it building long-term wealth, or just generating income?
I saw this play out in my family's textile manufacturing business. At one point, we were paying 15% of every sale to reps and had limited control over our customer relationships. In the late '90s, we made a shift. My brother built our first website. We started going to more trade shows and moved to a direct-to-consumer model.
The result: we saved $50,000 a year, grew revenue by 25%, and built a more scalable business. Eventually, that helped drive a better sale.
Initially, there was resistance. At the time, working with sales reps felt safer — they knew the industry, and it was what we were used to. But once our accountant showed what stronger margins and direct relationships could mean for the business's value, it changed the conversation.
Why Business Value Matters Now
Valuation isn't just about selling. Improving it gives you more leverage today — for financing, expansion, and personal planning.
And with more competition for quality businesses, understanding value drivers is more useful than ever.
Most owners aren't tracking the numbers that matter most. These three are a good place to start:
1. EBITDA: A Clear View of Profitability
EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — shows your business's core operating performance.
Typical benchmarks:
- Manufacturing: 10-18%
- Professional services: 20-25%
- SaaS/subscription: 30%+
In our case, margins jumped from 8% to 16% after we went direct. That didn't just improve profits — it changed how the business was valued.
Quick check: Revenue minus operating expenses (excluding interest, taxes, depreciation, amortization), divided by revenue. That's your EBITDA margin.
2. Customer Concentration: A Hidden Risk
If one customer makes up more than 20% of your revenue, that's a flag — for lenders, buyers, and even internal decision-making.
Even loyal clients can leave. The more diversified your customer base, the more resilient your business becomes.
Reducing concentration doesn't mean losing a key client — it means building around them.
3. Cash Flow Consistency: A Stability Premium
It's not just how much you earn — it's how predictably you earn it.
A business earning $500K with wide monthly swings often gets valued less than one with $450K and consistent cash flow.
You don't need perfect forecasting, just a reliable pattern. Ways to smooth cash flow:
- Require deposits on larger projects
- Offer early payment incentives
- Shift ongoing work to retainers
Small changes here can increase value and reduce stress.
Why It's Not Just About the Business
Each improvement — margin, diversification, consistency — builds business value. But it also opens doors. As a financial planner, I work with business owners who've built great companies — but haven't connected that success to long-term wealth.
Getting intentional about value gives you options:
- Retire earlier
- Invest more flexibly
- Support family or philanthropic goals
This Week's Gut Check
Look at these three:
- What's your EBITDA margin?
- How concentrated is your revenue?
- How steady is your cash flow?
Improving even one of them moves you forward. If you want help evaluating the numbers or tying them to your broader plan, I'd be glad to connect.