Beyond the Multiple: How a Real Valuation Sets Your Most Probable Sales Price (MPSP)
- Mark Hartmann
- Aug 20
- 8 min read
Updated: Sep 17
On a recent call with a group of M&A advisors, someone joked, “The multiple only means everything.” It got a laugh because we’ve all heard owners anchor on that one number. What’s the multiple in my industry? What did my friend’s company get? Multiples are useful—no argument there. But they’re a starting point, not the finish line.
If you’re a business owner planning to sell within the next one to three years, here’s the truth: a buyer’s multiple is really a shorthand for their view of risk, quality, and momentum. If you want top dollar and favorable terms, your energy is better spent improving those three ingredients than chasing a number you saw on a blog or heard at the golf course.
You only sell your business once. Make it count.
Why Multiples Matter—and Why They Don't
Industry multiples—“manufacturers trade at 5–7x,” “specialty contractors at 4–6x,” “software at double digits”—give you a rough neighborhood. But inside that neighborhood, the houses are very different. One needs a new roof (owner-dependency). One has a leaky basement (sloppy books). One sits on a cul-de-sac (recurring revenue). Prices vary accordingly.
At a basic level, valuation math looks like this:
Enterprise Value ≈ Normalized EBITDA × Market Multiple
Equity Value ≈ Enterprise Value ± Working Capital Adjustment − Debt + Cash
Here are the parts that cause deals to swing above or below the industry average:
Normalized EBITDA: Add-backs must be defensible. A buyer and their lender will test each one.
Working Capital: You’re not just selling assets and earnings; you’re also delivering a “normal” level of working capital at close. If you haven’t planned for the net working capital (NWC) peg, it can feel like a surprise haircut late in the process.
Risk: Customer concentration, owner dependency, key-person reliance (often a top salesperson), inconsistent financials, and project volatility all push the multiple down.
Quality: Recurring revenue, accurate and timely financials, documented processes, sticky customers, strong backlog, and a capable second line of leadership push the multiple up.
So yes, multiples matter—but only after you’ve done the work to present earnings quality, working capital, and risk in their best light.
What a Comprehensive Valuation Actually Delivers
Before you list, a comprehensive business valuation should do two things:
Estimate your Most Probable Sales Price (MPSP): A realistic value range based on your company’s earnings, cash needs, risk profile, buyer universe, and current market dynamics.
Surface the levers you can pull now to increase price and improve deal terms: The right pre-sale moves can shift you from the middle of the comp set to the top.
Think of the valuation as both an honest mirror and a roadmap. It shows what the business is worth today and what specific improvements could justify a higher number in 6–18 months.
The Top Salesperson Trap (and Why Buyers Fixate on It)
Here’s a scenario we see often: one superstar salesperson drives 30–50% of total revenue. It’s a great problem—until you sell. A buyer looks at that and sees concentration risk: What if they leave? What if their key accounts were really buying from the person, not the company?
Value levers to address the risk:
Team Selling: Pair the top rep with an account manager. Share relationships, not just leads.
Documentation: Put the pipeline in a CRM with notes, proposals, and next steps visible to leadership.
Comp Plans and Agreements: Align incentives to retention and team outcomes; formalize non-solicit and confidentiality agreements (consult counsel).
Account Diversification: Move key accounts under “named account” structures shared by at least two people.
When your valuation flags a single-point-of-failure in sales, you have time to fix it. The result: lower perceived risk, higher multiple.
Financial Rigor: The Difference Between “Nice Business” and “Financeable Deal”
Buyers—and their lenders—do not underwrite stories; they underwrite numbers. If your books are late, inconsistent, or tax-minimized to the point of confusion, you pay for that in both price and terms.
Pre-sale financial tune-up:
Accrual-basis financials with a clean, consistent chart of accounts.
Monthly closes within 10–15 days, with variance analysis you can explain.
Inventory discipline: Counts, costing method clarity, and shrinkage controls.
AR/AP hygiene: Policies, aging visibility, and collections cadence.
CapEx log: Separate maintenance from growth CapEx to clarify true free cash flow.
Owner-related expenses properly identified with defensible add-backs (and documentation).
Pre-QoE mindset: Act as if a Quality of Earnings review starts tomorrow. Organize support now—customers, contracts, leases, payroll, tax returns, bank statements, and the “why” behind key swings.
The cleaner your numbers, the more comfortable a buyer is with your cash flow—and the more aggressively they can price and structure the deal.
Operations: Where Multiples Go to Rise (or Fall)
Beyond sales concentration and the books, buyers want to see that your business runs on systems, not heroics.
Operational levers that move value:
Process Documentation: SOPs for core functions—sales handoffs, production/fulfillment, customer service, purchasing, quality control, compliance.
Leadership Depth: Someone besides the owner can run the day-to-day. A ready second-in-command is a multiple booster.
Customer and Vendor Contracts: Term lengths, renewal mechanics, assignability on change of control, and pricing protections.
Revenue Quality: Recurring or re-occurring revenue, long-term agreements, sticky integrations, and switching costs.
Backlog and Pipeline: Visibility into forward demand—and evidence that it converts.
Pricing Power: Documented price increases that stick without volume loss.
Safety and Compliance: Clean records and training logs; bad surprises kill deals.
Technology: A sane tech stack (ERP/CRM/accounting) that someone else can step into without chaos.
Every one of these factors shows up in a thorough valuation—and each gives you a practical to-do to improve the number that matters.
A Simple Contrast: Same EBITDA, Different Outcomes
Consider two companies, each with $2.0M in normalized EBITDA in the same industry with “typical” multiples of 5–7x.
Company A
Top salesperson generates 45% of revenue.
One customer is 28% of sales; no formal contract.
Books are cash-basis with heavy year-end adjustments.
Owner approves all pricing and sits in every key meeting.
Inventory records are sporadic; write-offs happen but aren’t tracked.
Company B
No single salesperson exceeds 20% of revenue; CRM shows shared coverage.
Largest customer is 12% of sales, multi-year contract with renewal.
Accrual-basis monthly closes with variance analysis.
Documented SOPs, trained GM who runs operations; owner focuses on strategy.
Inventory cycle counts, CapEx log, and reliable gross margin reporting by product line.
Both start in the “5–7x neighborhood.” But A’s risk pulls the multiple down (say, 4.5–5.5x), and B’s quality pushes it up (6.5–7.5x). That’s a swing of $4–$5 million in enterprise value on the same earnings, before we even talk about working capital or structure. The difference isn’t magic—it’s preparation.
Your CIM Is Only as Strong as Your Valuation
At HartmannRhodes, we say the Confidential Information Memorandum (CIM) is the marketing book for the sale of your business. It’s how we tell your story to the right buyers—and it must be bulletproof. A rigorous valuation is the backbone of a great CIM:
It anchors the narrative in facts buyers and lenders respect.
It targets the right buyer universe (strategic vs. financial, sponsor-backed vs. independent).
It preempts diligence friction by answering tough questions up front.
It supports stronger terms because the deal feels “underwritten,” not just “presented.”
If the CIM is the show, the valuation is the rehearsal—where we fix the lines, tighten the scenes, and make sure the set won’t wobble on opening night.
The 12–24 Month Valuation Roadmap
If you’re 1–3 years from selling, here’s a pragmatic timeline to maximize your MPSP:
Months 0–3: Diagnose
Commission a comprehensive valuation with a real diligence lens (not a back-of-the-envelope comp sheet).
Identify top value drags: sales concentration, owner dependency, financial gaps, customer contracts, pricing, backlog visibility, compliance issues.
Months 3–9: Stabilize and Systematize
Clean the books; move to accrual if needed; close monthly on a cadence.
Implement or tune CRM; enforce team selling and pipeline documentation.
Document SOPs for core processes; train a second-in-command.
Negotiate or renew key customer/vendor agreements with assignability and clear terms.
Months 9–18: Strengthen the Story
Reduce concentration (no single rep >20%, no single customer >15% if possible).
Demonstrate pricing power or margin expansion with discipline.
Build a forward view: credible 12–24 month pipeline/backlog reporting.
Separate growth vs. maintenance CapEx; show cash conversion.
Months 18–24: Pre-Market Readiness
Refresh the valuation to quantify the lift from your improvements.
Assemble diligence materials as if QoE starts tomorrow.
Craft the CIM using your improved metrics and proof points.
Decide on timing, buyer targets, and preferred structures (e.g., cash at close vs. earnout, rollover equity, seller note) based on your objectives.
This is how owners move from “industry average” to “top of range”—and sometimes beyond.
A Note on “The Multiple Only Means Everything”
That line from the advisor call sticks because it’s half-true. The right multiple, applied to the right earnings, supported by the right story, can indeed mean everything. But if you skip the hard work—cleaning the books, strengthening sales coverage, reducing concentration, building leadership depth, documenting processes—you’ll be pegged at average or worse, with more contingent terms, tighter reps and warranties, and possibly a lower NWC peg than you expected.
A thoughtful valuation doesn’t just forecast a number—it creates options: better buyer fit, stronger negotiating leverage, and deal structures aligned with your goals (retirement security, legacy, employee stability, or growth upside through rollover equity).
Ready to See Your Most Probable Sales Price?
If you’re considering a sale in the next 12–36 months, start with a comprehensive valuation that yields an MPSP and a clear, prioritized action plan. Use that plan to drive improvements over the next few quarters and to build a compelling, defensible CIM—the marketing book that presents your business at its best.
You only sell your business once. Make it count.
HartmannRhodes advises owners of companies typically valued between $1–$25 million. If you’d like a structured pre-sale valuation review and a readiness roadmap, we can walk you through the process and tailor it to your timeline and goals.
Blog: Beyond the Multiple: How a Real Valuation Sets Your Most Probable Sales Price (MPSP)
Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.
Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).
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