How SMBS can build a business investors want to buy

For many entrepreneurs, building a profitable business is only part of the equation. Creating a company that can attract investors and command a strong valuation requires long-term planning, operational discipline, and a focus on building a transferable asset.

Brian T. Franco, founder of Meritage Partners and author of Inevitable Exit, is featured on the latest episode of Business Trends Today. Franco has advised on over $2 billion in transactions, specializing in helping business owners transform owner-dependent companies into scalable, investor-ready enterprises. His strategy focuses on shifting owners from an income-focused mindset to an outcome-driven strategy centered on exit readiness.

First, Franco emphasizes that every business owner will eventually exit their company, whether through an internal transition such as a family succession or management buyout, or through an external sale to a strategic or financial buyer. Preparing for that outcome early allows owners to maintain optionality and maximize value when the time comes.

According to Franco, a key factor in attracting investors is reducing risk within the business. He alludes that investors evaluate companies based on durability, continuity, and transferability. Businesses that rely heavily on the owner for day-to-day operations often struggle to achieve strong valuations, while those with established systems, leadership teams, and documented processes are more appealing to buyers.

Testing a company’s independence from its owner is a practical way to assess readiness. Businesses that can operate effectively without constant owner involvement signal stability and scalability to potential investors. In contrast, companies that require the owner to remain actively involved post-sale often reflect unresolved operational risks that can affect deal structure and valuation.

Additionally, Franco also highlights the importance of understanding how investors view financial performance. While profitability is critical, investors place equal weight on the sustainability of that performance over time. Systems, intellectual property, and a capable management team are key indicators of long-term viability. When critical knowledge or decision-making resides solely with the owner, it introduces risk that can reduce both valuation and deal attractiveness.

In the current environment, private capital continues to play a significant role in acquisitions. Franco explains that larger platform acquisitions typically require substantial earnings to meet scale expectations, while smaller businesses may still attract interest as add-on acquisitions if they offer strategic value or synergies. These add-ons can enhance geographic reach, expand service offerings, or strengthen customer bases within an existing portfolio.

"The outcome of building an exit strategy plan is going to keep you accountable to building the business as it's designed."

Financial presentation is another critical component of preparing a business for sale. Many business owners minimize reported profits through tax strategies, but investors evaluate adjusted earnings that reflect the true cash flow of the business. Identifying and normalizing these figures allows buyers to better understand the company’s underlying value.

Franco advises business owners to begin planning their exit strategy as early as possible, ideally at the formation stage. For those who have not yet done so, immediate action is still essential. Preparing a business for sale involves not only operational improvements but also time for marketing, negotiation, and potential post-sale transition periods.

Ultimately, Franco’s framework centers on building a company that can function independently of its owner. By focusing on systems, leadership, and long-term scalability, business owners can position themselves for stronger valuations, smoother transitions, and greater flexibility when it comes time to exit.