The Exit Journal

Welcome to this week’s issue of The Exit Journal. Your weekly guide to everything you need to know to sell your online business.

I had a call last week with a founder doing $800K in annual revenue. She was convinced her SaaS business was worth $2.4M because she’d read that "SaaS companies trade at 3x revenue."

Her profit? Negative.

We need to talk about the biggest myth in digital business valuations.

I’m sure you’ve heard about the tech companies being acquired left, right and center for massive rev multiples, even when they’re not profitable. 

However, unless you’re running a unicorn business, then revenue multiples are unlikely to apply to you.

Devastating, I know.

Here's what nobody tells you: digital businesses aren't valued on revenue multiples. They're valued on profit multiples—specifically, Seller's Discretionary Earnings (SDE), or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

Many founders are building revenue machines, not profit engines.

You're scaling ad spend to hit that magical 7-figure milestone. You're ordering inventory in smaller batches to test products. You're offering free shipping to compete with Amazon. You're running 20% off promotions to move old stock.

And slowly, quietly, you're destroying your exit value.

A buyer doesn't care that you did $1M in revenue. They care that after COGS, ad spend, platform fees, shipping, returns, and payment processing, you netted $180K. At a 3x multiple, that's a $540K business—not the $2M+ exit you've been planning for.

What about SaaS?

I hate to be the one to break it to you… but buyers are unlikely to pay you for the tech you’ve built. Instead, they’ll pay you for the profit that tech generates.

If you're building with an exit in mind—even if it's 5-10 years away—here's the number one thing you need to think about: profit margin.

Here's the reality from someone who brokers these deals daily.

Buyers aren't purchasing your revenue. They're purchasing a profit stream. They want to know: "How much cash will this business put in my pocket each year, and how quickly will I recoup my investment?"

If you're building to exit, every dollar you add to your profit margin is tens of thousands of dollars added to your exit price.

As always, the best exits happen when you prepare before you’re ready.

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-Stephanie Veal

PS. If you’re curious what your business could be worth, or just want to chat about what an exit could look like, feel free to grab a time on my calendar. 

If you know someone considering an exit, send this email to them!

Cheers,

Stephanie

I am an M&A Broker affiliated with Flippa. This content solely reflects my own views/opinions and does not reflect the views/opinions of Flippa.