Michael Levison

Why buyers restate your numbers, rewrite your deal, and reduce your leverage—often without you realizing it. Key Takeaways Introduction When business owners think about selling, they focus on revenue growth, margins, and the story behind the business. What often gets overlooked is how that story is told financially. Your accounting method—specifically cash versus accrual—can quietly undermine value and shift leverage to the buyer at exactly the wrong moment. Why This Matters to Business Owners Buyers don’t buy bank balances. They buy future cash flow, assessed through historical performance. That performance is evaluated using trailing twelve-month results, normalized EBITDA, and working capital expectations. Those metrics depend heavily on timing. Cash accounting may work well for managing taxes and day-to-day operations, but in a sale process it often fails to reflect how the business actually performs. When the financial picture doesn’t align with operational reality, buyers assume risk—and they price that risk into the deal. How Cash Accounting Distorts the Story Buyers Are Buying Cash accounting recognizes revenue when money hits the account and expenses when bills are paid. In isolation, that sounds reasonable. In practice, it can create misleading swings in profitability that have nothing to do with how the business is really operating. Pre-billing customers for future work, delaying vendor payments, or experiencing timing gaps in collections can all inflate profits in one period and depress them in another. To a buyer reviewing your financials, margins may look inconsistent, seasonality may appear exaggerated, or earnings may seem less predictable than they truly are. Even a strong business can appear erratic on paper when revenues and expenses aren’t matched to when the work actually occurs. The Diligence Moment Where Deals Get Rewritten These distortions almost always surface during diligence, particularly in a Quality of Earnings review. At that point, the buyer’s advisors restate your financials on an accrual basis to understand “true” earnings. When that restatement reduces EBITDA, the consequences are real. Purchase prices get adjusted downward. Earnouts get introduced. Escrows grow. Timelines stretch. What began as a straightforward deal turns into a renegotiation—one where the buyer controls the narrative because they’re the first to translate your numbers into accrual reality. What Sophisticated Buyers Expect—Whether You’re Ready or Not Strategic buyers and private equity firms expect accrual-based financials. It’s the standard language of institutional diligence. When sellers present only cash-based statements, buyers assume additional work will be required and apply conservative assumptions from the outset. Even if your buyer is not institutional, their lender or equity partner often is. That means accrual scrutiny is coming regardless. Choosing not to prepare doesn’t avoid this process—it simply ensures that it happens on the buyer’s terms, not yours. Checklist: Exit-Ready Financial Hygiene Final Insight Cash accounting isn’t a mistake. But treating it as “good enough” when preparing for a sale is. Accrual accounting is less about compliance and more about control—control over your valuation, your timeline, and your negotiating position. Owners who address this early reduce surprises, build buyer confidence, and protect enterprise value when it matters most. Schedule an Appointment If you’re considering a future sale, now is the time to assess whether your financials would hold up under buyer scrutiny. Schedule an appointment to identify hidden risks, protect value, and prepare your business for a stronger exit.

What business brokers, investment bankers, and private equity buyers actually look for in manufacturing exits Many manufacturing owners assume that strong revenue growth guarantees a strong exit. In reality, buyers — including private equity firms and strategic acquirers — price risk, scalability, and preparedness far more aggressively than performance alone. As a business broker and M&A advisor, I routinely see profitable manufacturers leave significant value on the table simply because they weren’t ready to be bought. Key Takeaways Why This Matters to Business Owners Manufacturing is benefiting from reshoring, automation, and AI-driven productivity. But growth trends alone do not protect valuation. Owners who wait until they’re ready to “sell my business” often discover too late that buyers see hidden risks — risks that compress multiples and weaken negotiating leverage. From a business brokerage and investment banking perspective, exit readiness is no longer optional. What Really Drives a Premium Manufacturing Valuation The average manufacturing business sells for roughly 4–8× EBITDA. Well-prepared companies, with strong growth prospects, can achieve 8–10× or more. The difference is not revenue — it’s structure. Buyers consistently reward: Process efficiencyAutomation, integrated systems, and reduced dependence on manual labor signal scalable profitability. Revenue qualityMulti-year supply agreements, recurring consumables, or predictable reorder behavior reduce earnings volatility. Customer diversificationWhen one customer represents 25–30% of revenue, buyers discount aggressively. Diversification protects enterprise value. Competitive defensibilityPatents, proprietary processes, and specialized know-how create barriers that strategic and private equity buyers value highly. Visible growth capacityUnderutilized production capacity, new markets, or adjacent product lines give buyers a clear expansion thesis. As an M&A advisor, this is where I see the largest valuation gaps emerge. Private Equity Now Sets the Rules in Manufacturing M&A Private equity firms are now the most active acquirers of manufacturing businesses. Most are not buying standalone platforms — they are executing bolt-on acquisitions. To appeal to these buyers, sellers must show: The strongest outcomes occur when owners understand why a buyer would acquire them — not just what they’ve built. Supply Chain Risk Is a Valuation Lever Supply chain resilience and redundancy has become a pricing variable in manufacturing M&A. Buyers now scrutinize: High-value sellers proactively: When owners ask, “Why did the buyer reduce their offer?” this is often the hidden reason. Optional Exit Readiness Checklist Final Insight / Closing Thought Owners who achieve premium exits don’t wait until they decide to sell their business — they plan years in advance. The role of a business broker, M&A advisor, or investment banker is not just to run a transaction, but to help owners eliminate risk before buyers price it in. Schedule a Call If you’re thinking about selling your manufacturing business in the next few years, now is the time to assess exit readiness. Schedule a confidential appointment to understand how buyers would value — and discount — your business today.

Why the way you prepare add backs can often matter more than the number itself Key Takeaways Introduction Most business owners see add backs as a straightforward way to show higher earnings. Buyers see them as a test of credibility. The gap between those two perspectives often determines whether a deal closes at the expected price—or not. Why It Matters Add backs directly influence EBITDA, and EBITDA drives valuation. But buyers don’t value optimism; they value risk-adjusted earnings they believe will continue after the owner exits. When add backs feel aggressive, inconsistent, or poorly explained, buyers don’t just remove them—they begin questioning everything else in the financials. That skepticism shows up quickly in lower offers, earnout-heavy structures, or last-minute price cuts. Owners who treat add backs casually often assume the debate will be settled later. In reality, first impressions during CIM review and early diligence shape buyer psychology. Once credibility erodes, it is difficult to recover. What Add Backs Really Are (and Aren’t) Add backs are meant to normalize earnings, not inflate them. They exist to remove expenses that will not recur for a new owner or that are clearly non-operational. They are not a place to park every cost an owner dislikes or hopes a buyer will overlook. Buyers expect add backs to explain how the business truly performs on a go-forward basis without the current owner’s unique situation. How Buyers Actually Evaluate Add BacksBuyers rarely argue about accounting theory. They ask simpler questions: Would this expense exist if we owned the business? Is there proof it won’t come back? Is it material enough to matter? Add backs that require long explanations, subjective judgments, or verbal assurances are discounted quickly. The buyer’s job is to price risk, and anything unclear is treated as risk. Common Owner Blind SpotsPersonal expenses are the obvious issue, but not the most damaging one. Owner compensation is often misjudged, especially when the owner performs multiple roles. “One-time” expenses that appear more than once raise immediate flags. Deferred maintenance, under-market rent, or temporary labor fixes can also backfire when buyers realize normalized earnings may actually be lower, not higher. How Add Backs Impact Real DealsQuestionable add backs rarely just disappear quietly. They reduce confidence in EBITDA, which leads buyers to lower the multiple, demand holdbacks, or shift value into earnouts tied to future performance. Even when headline price looks acceptable, deal terms become more restrictive. Clean add backs, by contrast, allow buyers to underwrite faster and compete harder. When Add Backs Truly Support Higher ValuationThe strongest add backs are boring. They are consistent across years, tied to clear documentation, and easy for a buyer to model. When add backs are prepared with a buyer’s lens—supported, conservative, and repeatable—they do what owners expect: protect valuation and reduce friction. Optional Checklist — Buyer-Acceptable Add Backs Final Insight Add backs are less about math and more about trust. Buyers don’t pay premiums for creativity; they pay for clarity. The owners who get the best outcomes treat add backs as part of exit preparation, not a negotiation tactic. If you are considering a sale, the right time to pressure-test your add backs is before a buyer sees them. Schedule a confidential review to assess how your earnings will be viewed—and valued—by the market.

Everyone’s talking about growth in manufacturing due to reshoring, automation and AI driven productivity. Almost no one’s talking about exit readiness in these companies. Yet the biggest wins in today’s M&A market aren’t going to the companies with the highest revenue — they’re going to the ones that are best prepared to sell. Here’s what I’m seeing across recent manufacturing deals 👇 1️⃣ The Real Drivers of a Premium Valuation The “average” manufacturing deal trades around 5–8x EBITDA, but the best-run companies are getting 8–10x — even higher.  What separates them? Five value drivers: ✅ Process efficiency: Buyers pay more for automation, data integration, and “lights-off” manufacturing that runs with minimal human labor.✅ Revenue quality: Multi-year supply contracts or recurring consumable sales reduce risk and boost value.✅ Customer resilience: If one customer accounts for 30% of revenue, your multiple drops fast. Diversify early.✅ Competitive moat: Patents, specialized processes, or proprietary know-how protect margins and attract strategic buyers.✅ Growth capacity: Buyers pay for what they can scale — underutilized capacity, new markets, or product extensions all count. Efficiency, predictability, and defensibility create valuation lift — not just revenue size. 2️⃣ The New Power Players: Private Equity Private equity firms have become the dominant buyers in manufacturing in recent years.  Most aren’t buying standalone “platform” companies — they’re adding “bolt-ons” to existing platforms.  They’re looking for businesses that fill a gap — new geography, new capability, or new customer base. If you’re a potential bolt-on, here’s how to stand out: ✅ Research which PE firms already own companies like yours.✅ Show how your business complements theirs — efficiency, relationships, or market access.✅ Be ready for deep due diligence. Organized financials, equipment logs, and customer data build trust.✅ Map out the next-stage growth story — not just what you’ve done, but what you enable. Private equity buyers pay for clarity and scalability. Make it easy for them to see both. 3️⃣ Supply Chain Risk Is Now a Valuation Lever Buyers used to skim over supply chain details.  Not anymore. After the last few years, they’re laser-focused on sourcing risk — especially overseas dependence or single-source suppliers. Here’s what strong sellers are doing: ✅ Building redundancy — at least two qualified suppliers per critical input.✅ Mapping their supply chain visually to show resilience.✅ Documenting long-term supplier relationships and performance metrics.✅ Creating continuity plans that address disruptions before they happen. You don’t have to be disruption-proof — but you do need to prove you can adapt fast. 🏁 Final Thought If you’re considering a sale in the next few years, the best time to prepare was yesterday.The second-best time is now. At VAP/Raincatcher, we help manufacturing owners identify the 3–5 changes that can most increase valuation within 12 months.

When buyers say a business “depends too much on the owner,” they aren’t questioning work ethic—they’re identifying risk, and risk erodes value. No matter how strong the numbers look, a company that can’t function smoothly without the owner at the center will struggle to attract serious buyers or command a premium price. Why Owner Dependency Kills Value In most purchase transactions, buyers primarily evaluate two things: profitability and transferability. Profitability tells them how much the business earns today. Transferability tells them whether those earnings will continue after the owner steps away. A company whose revenue, relationships, and decisions all flow through one individual has weak transferability. Buyers worry that when the owner exits, customers may leave, employees may lose direction, and the company’s rhythm may falter. That uncertainty usually translates to fewer bidders, longer negotiations, and lower valuations. We offer a free tool that we offer, called the Value Builder Score (VBS),  helps identify the most common value gaps we see in owner-led businesses. Owners who built their companies from the ground up often become the hub of every wheel—sales, pricing, operations, even HR. It’s understandable, but it’s not sustainable.  To get your company’s VBS, click here. The Financial and Deal Impact Dependency issues almost always surface during diligence. Sophisticated buyers notice immediately when the owner controls key accounts, personally closes deals, or signs every check. More often than not, this will result  in more contingencies, longer transition periods, and performance-based earnouts instead of clean cash closings.  Buyers know they’ll need to hire or develop new leadership, document systems, and invest time in stabilizing relationships—all costs that get factored into their offer. Reducing Owner Dependency 1. Document and DelegateStart by getting what’s in your head onto paper—or into systems. Document core processes: sales steps, client onboarding, service delivery, reporting. Then assign ownership. Empower trusted team members to make decisions, even small ones. The best test of independence is whether the business can run smoothly when you take a week off. 2. Build Structural IndependenceInstall systems that institutionalize best practices. CRMs, project management tools, good training and consistent reporting all help ensure visibility without micromanagement. Formalize roles, create standard operating procedures, and build a cadence of team accountability meetings. The goal is not to make yourself unnecessary overnight, but to make yourself optional in day-to-day execution. 3. Transfer Relationship OwnershipBuyers pay premiums for businesses with diversified customer and supplier relationships. Begin transitioning key accounts to other leaders. Introduce senior staff to your most important clients and vendors. Build team-based relationships so loyalty transfers to the company, not just the founder. 4. Strengthen the Second Layer of LeadershipThe presence of a capable management team reassures buyers that the business has continuity. Invest in developing mid-level managers who can think strategically and execute operationally. Even small companies can benefit from a “shadow leadership” approach, where rising team members participate in higher-level discussions and decision-making. Reducing owner dependency doesn’t just make your business more sellable—it makes it stronger today. When processes, relationships, and decisions are distributed, performance improves, stress declines, and enterprise value grows. The first step is understanding where you stand take the Value Builder Score Survey.  The resulting report provides a clear, data-backed assessment of your company’s dependency risks and practical steps to increase transferable value as well as providing insights into how your business compares to other similar companies. Schedule a confidential consultation to see how your business scores—and what you can do now to build a company that runs without you.