Ask an owner what the business earns and you will usually hear last year's number, or the best year in recent memory. Ask a buyer and you will get a different question back: which year? How buyers answer that question, and how they treat a great year or a bad one, tells you a lot about what your business is worth today.
1. The most recent twelve months come first
A buyer wants to know what the business is earning now, not what it earned when the last tax return was filed. That usually means the trailing twelve months: the latest twelve months of results, updated as each month closes.
The buyer's lender, though, works from the filed tax returns. That means your monthly books and your returns have to tell the same story. When the books show earnings the returns do not, the deal slows down while someone explains the gap, and some of that gap may never be counted.
2. A spike year gets averaged
Suppose the business earned around $400,000 for several years, then $650,000 last year because of one large project or a customer that ordered heavily and has since gone quiet. The owner sees $650,000. A buyer sees a business that usually earns about $400,000 and had a good year. Most buyers will look back two or three years, and many will weight them, giving the most recent year the most weight but not all of it.
A strong year is worth the most when you can show it is repeatable: new customers, a price increase that held, a service line that keeps growing.
3. A dip year needs a cause and a recovery
The opposite happens too. A key employee left, a large customer paused, a building move cost a quarter of production. Buyers do not automatically discount a business for one weak year, but they will not ignore it either. They want to know what happened, whether it is over, and what the months since look like.
The owners who come through this well can point to the cause in a sentence and show monthly results that have recovered. The owners who struggle are the ones who say "that was a strange year" and leave it there. An unexplained dip gets read as the start of a trend.
4. Projections are rarely paid for
Every owner can see where the business could go. A credible growth story helps a business sell, but buyers pay for what has already happened. They are taking the risk of making the projections come true, and they will not hand you the reward for that risk up front.
If you believe next year will be much stronger, there are two honest ways to get paid for it: wait until the results are on the books, or accept part of the price as an earnout tied to those results.
5. The year before you go to market is the one that counts
Put the first four points together and one conclusion follows: the twelve months before you list carry more weight in your price than any other period. That is the stretch buyers will study, the lender will test against your returns, and the trend line will be drawn from.
So treat it that way. Keep monthly financials current and closed on time. Keep selling, because results that slip while the business is on the market reopen the price. And if a big contract or price increase is just starting to show up, consider letting a few more months of it land before you go to market.
The takeaway
Your business is not worth what it earned in its best year, and it is not condemned by its worst. A buyer prices the most recent twelve months, checks them against your tax returns, averages out the spikes, asks about the dips, and leaves the projections for you to prove. Plan your exit so that the year buyers look at hardest is a year you are proud to show them.
