Selling a $5M Revenue Company: How to Maximize Value
Selling a $5M Revenue Company: How to Maximize Value
For owners of mid-sized companies, hitting $5 million in annual revenue is a milestone. It signals scale, traction, and the potential for a meaningful exit. But revenue alone doesn’t sell a business.
Profitability, growth rate, market positioning, and how you run your operation matter more than the top-line number. If you’re thinking about selling your company at this stage, here’s what you need to know to set yourself up for success.
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Is a $5M Revenue Company Sellable?
Absolutely. Businesses with $5M in annual revenue sit in a sweet spot of the lower middle market—big enough to attract serious buyers, but still nimble enough to operate without the complexity of larger organizations.
But what truly drives buyer interest is profitability. Consider this: would you rather buy a $5M revenue business with $200K of profit or a $3M revenue business with $1M of profit? Most serious buyers would choose the latter without hesitation.
Why? Because buyers value companies based on EBITDA (earnings before interest, taxes, depreciation, and amortization). Companies with higher margins and EBITDA aren't just more attractive—they're also more eligible for bank financing.
Valuation Expectations: What is Your Business Worth?
For $5M revenue companies, valuations vary depending on profitability, growth rate, customer concentration, and industry. Generally, businesses with $750K+ in EBITDA command 3x–6x multiples. If you’re running lean and generating $1M in EBITDA, you could be looking at a $3M–$6M valuation range, depending on risk factors and the buyer pool.
Want to know more about business valuation mechanics? Schedule a confidential call with our team to get your FREE value assessment here.
Who's Buying Businesses at This Level?
The $5M revenue range opens the door to a broader set of buyers:
Strategic Acquirers: looking for bolt-ons acquisitions (smaller businesses they can combine with their existing business) or opportunities to expand into new markets
Private Equity Firms: seeking platform or add-on investments
Search Funds & Entrepreneurial Buyers: many of these buyers currently work in Corporate America and are ready to buy a business to start their entrepreneurial journey and have more flexibility in their life. ****
Each buyer type brings different expectations to the table. PE firms, for instance, often seek at least $1M in EBITDA. Strategics may value synergies and be more flexible on margins.
Pro Tip*:* Not all buyers are created equal. That’s why working with the right M&A advisor is key. Here's our guide on how to find an M&A advisor who fits your goals.
Preparing a $5M Business for Sale: How to Drive the Most Value
We've witnessed clients lose $250,000 due to poor preparation. Don't let this happen to you—here's how to best prepare your business for a high-value, low-stress exit:
1. Get Your Financials in Order
Clean, accrual-based financials with clear add-backs help buyers assess your true earnings. Engage a quality CPA or fractional CFO to help you present your numbers professionally.
2. Document Your Operations
Buyers want to know your company isn’t dependent on you. Systematize operations, document SOPs, and train your team to run the business without your daily involvement.
One of the easiest wins is transferring key client relationships to a sales manager. While nerve-wracking, this step is crucial if you want a deal with more cash at closing instead of risky performance clauses like earn-outs (where business value depends on future performance).
3. Have a Lawyer Stress Test Your Business
Customer concentration, outdated systems, or a shaky legal foundation can tank deals. At Breakwater M&A, we put our "buyer's hat" on for every client—critiquing their business from all angles. The goal is that no stone is left unturned before your business is examined by buyers.
You can take this a step further by having your corporate lawyer act like they're representing a buyer for your business before going to market. This ensures that potential deal killers (like missing key customer contracts) are resolved well before your business is under offer, preventing the heartbreak of having a deal collapse during due diligence..
Deal Structures: What to Expect at This Level
Most $5M revenue exits involve some combination of:
Cash at close (the more, the better)
Earn-outs: performance clauses tied to future performance
Seller financing notes: this is when the seller "finances" part of the deal by accepting payments over time (typically 24-64 months). Many banks actually require some seller financing to approve the deal.
Equity rollovers: This deal structure is particularly attractive to buyers. In essence, it requires sellers to retain ownership (typically above 20%) in the business after the sale. This arrangement often provides sellers an opportunity for a larger buy-out of their remaining equity stake in the future.
While every seller dreams of a big cash payout, flexibility on structure often leads to better overall value. A good advisor helps you negotiate terms that protect your downside while maximizing upside.
The Role of an M&A Advisor: Why Go It Alone?
Some owners think selling a $5M business is straightforward, unfortunately, many owner-represented deals go off the rails and never close.
It’s been proven that M&A Advisors add up to 25% more value in a M&A transaction - here’s what Breakwater does to drive value:
Craft a narrative that positions your company as an excellent acquisition to the right type buyer (this part is key)
Build competitive tension between buyers
Navigate diligence, negotiations, and deal fatigue
Protect you from value-eroding mistakes (like the client who lost $250,000 by not following our guidance)
And most importantly, we only succeed when you do. Our incentive model aligns your success with ours—because that’s how it should be.
Timeline: How Long Does It Take to Sell?
From preparation to close, selling a $5M revenue company typically takes 6–9 months. Here’s the rough breakdown:
Preparation & Packaging: 30–60 days
Buyer Outreach & LOI: 60–90 days
Diligence & Closing: 60–120 days
The speed of a sale depends on your preparedness, market conditions, and the quality of your advisory team. However, here's an important caveat—not all businesses are ready to sell. That's why it's crucial to start planning your exit as early as possible, even if you're 5 years away from selling.
You can get started by booking a free confidential call with our team here.
Common Mistakes Owners Make
1. Overpricing Based on Revenue, Not Profit
Many owners fall into the trap of valuing their business based solely on revenue. This often leads to unrealistic expectations and prolonged time on the market. Smart buyers focus on EBITDA, profit margins, and cash flow - these are the true value drivers.
2. Waiting Too Long to Clean Up Financials
Clear, accurate financial records are crucial for a successful sale. Waiting until the last minute to organize financials can delay the process or worse, reduce buyer confidence. Start preparing 12-18 months before you plan to sell by implementing proper accounting practices and organizing your books.
3. Choosing the Wrong Buyer or Advisor
Not all buyers or advisors are created equal. The wrong buyer can waste months of your time only to back out, while an inexperienced advisor might miss crucial opportunities to maximize value. Take time to vet potential buyers and ensure your advisor has a proven track record with businesses similar to yours.
4. Failing to Plan Post-Sale
Many owners focus solely on the sale without considering what comes next. This includes both personal plans (retirement, next venture) and business transition planning (management handover, employee communication). A solid post-sale plan can actually make your business more attractive to buyers and ensure a smoother transition.
Avoid these common pitfalls and you'll not only sell faster—you'll maximize your company's value and ensure a smoother transaction process.
Final Thought: Success is About More Than Revenue
When it comes to selling your company, the size of your top line matters less than what's left at the bottom. A well-run $3M business with healthy profits often commands more buyer interest than a $5M business with razor-thin margins.
To recap why:
Profitability drives valuations more than revenue - buyers typically pay 3-6x EBITDA, not revenue
Lower revenue businesses with strong margins often have:
Better operational efficiency
More sustainable competitive advantages
Greater pricing power in their market
High-revenue but low-margin businesses face challenges like:
Higher working capital requirements
More operational complexity
Greater vulnerability to market changes
That's why Breakwater M&A focuses on helping owners position for value, not just volume. Our approach centers on identifying and enhancing the key drivers that matter most to buyers - whether that's improving operational efficiency, strengthening customer relationships, or optimizing your management team.
Connect with Breakwater
At Breakwater M&A, we work exclusively with founders of businesses doing $2M–$20M in revenue and $500K+ in EBITDA. If you’re thinking about selling your service business—now or in the next few years—we’re here to help you maximize the outcome.
Get started with a confidential call with our team HERE.
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