Owners looking to increase company value ahead of a sale should consider more than revenue and earnings. Buyers also assess how independent, predictable and future-ready a business is.

Key considerations include the company’s dependence on its management team, individual customers, suppliers or sales channels. Recurring revenue, reliable financial data and a compelling outlook for future growth also have a material impact on a company’s attractiveness.

Most value enhancement initiatives take time. Owners and shareholders should therefore begin preparing well before a sale process is imminent. This article outlines the most important levers.

Reduce dependence on the owner and management

Many mid-sized companies are closely centred on their founder, owner-manager or a small number of key executives. This can be efficient in day-to-day operations, but it may become a risk in a sale process.

If key customer relationships, operating decisions or strategic knowledge depend on one person, buyers will ask a fundamental question: will the business remain stable after the change of ownership?

A company with significant key-person dependency is not unsaleable. However, the transaction may become more complex and require extended transition arrangements, a longer commitment from the owner-manager or a valuation discount.

Build a strong second management tier

Reducing dependency requires an early transfer of responsibility and the development of a strong second management tier. This includes clear accountabilities, documented processes and executives who can make decisions independently.

Important questions include:

• Which employees have the potential to take on leadership roles?
• Which capabilities are missing from the management team?
• Can suitable leaders be developed internally, or is external recruitment required?
• Are responsibilities and decision-making processes clearly defined?
• Can key customer and business relationships be transferred?

Strong technical performers do not automatically become effective leaders. Building a resilient organisation often requires targeted development, training and practical management experience. The earlier these changes begin, the more credibly a seller can demonstrate that the business is not dependent on one individual.

Reduce customer, supplier and channel concentration

Dependencies beyond the management team also affect company value. These include concentration risks across customers and suppliers as well as reliance on individual sales channels.

Assess customer concentration

If a single customer accounts for 30 to 50 per cent of revenue, buyers will view this as a material risk. Revenue concentration alone, however, does not tell the full story.

Buyers will also examine:

• How long has the customer relationship existed?
• Is there a long-term contract?
• What termination rights apply?
• How profitable is the customer?
• How high would the customer’s switching costs be?
• How likely is the relationship to continue after the transaction?

A strong customer relationship can mitigate the risk, but it does not remove the need to broaden the customer base over time. New customer segments, lower exposure to individual accounts and systematic relationship management improve the predictability of the business.

During a sale process, it may also be advisable to prepare key customers at the appropriate stage. Buyers will usually want to form their own view of customer satisfaction and the likelihood that relationships will continue. Confidentiality and timing must be managed carefully. A professional customer satisfaction survey carried out before the transaction by a provider recognised by prospective buyers can create additional confidence.

Secure suppliers and sales channels

A similar risk arises when a company depends on a single supplier or sales channel. Examples include:

• a supplier for which no viable alternative is available,
• a manufacturer whose products are essential to the company’s offering,
• an online business that acquires almost all customers through one traffic channel,
• a distribution relationship tied to a single individual.

Potential measures include establishing second sources, negotiating longer-term supply agreements, adding distribution partners and strengthening proprietary channels. Not every dependency can be eliminated, but it should be understood, assessed and supported by a credible mitigation plan.

Build sustainable recurring revenue

Buyers assess not only current earnings but also their predictability. Recurring revenue can be a significant value driver, particularly where contract terms, renewals and customer retention are well documented.

Attractive models include:

• long-term customer contracts,
• subscription and licence models,
• maintenance and service agreements,
• repeat orders,
• usage-based or transaction-based revenue models.

In addition to recurring revenue, buyers review churn, contractual terms, profitability and revenue development by customer. A combination of recurring revenue and growth potential within the existing customer base is particularly compelling. This can include contracts that scale with customer demand through higher usage, additional users or further products and services.

Companies should therefore be able to demonstrate:

• the proportion of recurring revenue,
• how customer retention and churn are developing,
• which revenues are contractually secured,
• which additional products or services can be sold to existing customers,
• how revenue per customer and customer cohort is developing.

The role of AI should also be assessed in concrete commercial terms. Can it improve product quality, increase process efficiency, strengthen customer retention or create new revenue streams? A substantiated answer is more valuable than a general reference to a current technology trend.

Create transparency and a reliable data foundation

Many successful companies operate with data spread across several systems or compiled manually on a recurring basis. This is often insufficient for a sale process.

Buyers need to understand how revenue, margins, customers, costs and cash flow are developing. This requires consistent definitions, reliable reporting and a business plan based on transparent assumptions.

Particularly relevant metrics include:

• revenue and earnings by product, customer and region,
• gross and EBIT margins,
• customer retention and churn, ideally supported by cohort analyses,
• order backlog and pipeline,
• working capital,
• staffing and investment requirements,
• forecasts and variance analyses,
• material operational and financial risks.

A sound data foundation serves two purposes. It enables management to run the business more effectively and helps demonstrate the sustainability of earnings and the company’s realistic development potential during a sale process.

Integrated data models can help bring financial, customer and sales data together in a consistent format. Carlsquare develops central data models that can include a dedicated customer cube. The tool itself is not the deciding factor; what matters is data quality and the ability to derive robust conclusions from it.

Transparency also means addressing risks openly. Buyers will identify weaknesses during due diligence in any event. Sellers who recognise and quantify risks early and define concrete mitigation measures can strengthen their position in the transaction.

Develop a compelling equity story

The equity story explains why a company can remain successful and continue to grow after a sale. The focus is on the outlook for the years ahead.

A compelling equity story connects the company’s strengths with tangible growth opportunities, including:

• new products or services,
• additional customer segments,
• further international expansion,
• additional sales channels,
• digitalisation and automation,
• the use of AI with a clearly defined commercial benefit,
• strategic acquisitions,
• improvements in margins and scalability.

Each of these opportunities should be tested critically. How large is the addressable potential? What capabilities and investments are required? What risks need to be managed? Ultimately, the company should be able to explain which outcomes are realistic and over what timeframe they can be achieved.

The equity story should also reflect the buyer’s perspective. A strategic acquirer may provide additional distribution channels, products or geographic reach. A financial investor may support growth, international expansion or further acquisitions.

The central question is: what could a buyer develop from this business that the current owner could not achieve alone, or could not achieve at the same pace?

The more specific this perspective is, the more credible the equity story becomes. Buyers want to understand which initiatives are planned, how they can contribute to earnings and why the company is well positioned to deliver them.

Engage key stakeholders early

A company sale affects more than the buyer and seller. Employees, customers, suppliers, financing banks, co-shareholders and family members may all influence the process. Their interests and potential concerns should be understood and considered early.

This includes:

• the perspectives and retention of key employees,
• consent requirements of co-shareholders,
• financing and change-of-control clauses,
• the role of family members in the business,
• communications with customers and suppliers.

The key is to identify expectations, responsibilities and potential conflicts in good time. This helps avoid delays and unnecessary execution risk during the sale process.

Value enhancement starts well before a sale

Company value depends not only on current earnings, but also on business predictability, exposure to individual people and counterparties, data quality and the outlook for further growth.

Starting early allows owners to address several value drivers in parallel:

• reduce dependence on the owner and management,
• limit customer and supplier concentration,
• expand recurring and profitable revenue,
• improve transparency and data quality,
• develop a clear equity story,
• involve key stakeholders in the preparation.

Shortly before a sale, the available levers are naturally more limited. Strong current trading, reliable financial information and clearly defined targets can still improve the starting position. Sustainable change, however, usually requires considerably more time.

Carlsquare supports entrepreneurs and shareholders in preparing and executing company transactions. This includes analysing key value drivers and risks, developing the equity story and advising throughout the sale process.

Frequently asked questions about increasing company value

Can I still increase company value shortly before a sale?

The scope for value enhancement is significantly greater over the long term than in the final stages before a sale. Shortly before launching a sale process, the most effective measures are stable trading, current and transparent financial information, realistic business targets and a compelling equity story. Open risks, unclear contractual arrangements and missing data should also be identified and addressed as early as possible.

Is my company unsaleable if it depends heavily on me as the owner-manager?

No. However, a high degree of owner dependency can make a transaction more difficult and may result in additional transition arrangements or a valuation discount. Building a second management tier, documenting key processes and planning the handover reduce this risk. Realistically, this should be addressed several years before a sale.

How much customer concentration is acceptable?

There is no universally applicable threshold. However, a single customer accounting for 30 to 50 per cent of revenue materially increases risk from a buyer’s perspective. Relevant factors include contract duration, termination rights, the length of the relationship, customer profitability and the likelihood that the relationship will continue after the transaction.

What is an equity story and why do I need one?

An equity story explains why a company can remain successful and continue to grow after a sale. It connects the company’s track record with tangible opportunities such as new products, additional customer segments, international expansion, digitalisation or strategic acquisitions. It helps buyers understand the value creation potential of the business.

When should I start preparing for a company sale?

Ideally, several years before the intended transaction. Many initiatives, including building a second management tier, diversifying the customer base and introducing robust reporting systems, take time. Early discussions with M&A advisers can help set priorities and make progress measurable.

What services does Carlsquare provide?

Carlsquare is a partner-led investment bank focused on corporate finance and mid-market transactions. Its core service is M&A advisory for the sale and acquisition of companies. Carlsquare has completed more than 600 transactions. The firm also advises clients on debt advisory, growth equity and IPO strategy and preparation, with sector expertise spanning Software, Consumer & Internet, Business Services, Industrial Technology, Healthcare, and Energy & Infrastructure.

• Corporate Finance
• Debt Advisory
• Growth Equity Financing
• IPO Strategy & Preparation