Choosing an advisor
How do buyers value a company with strong revenue but inconsistent profits?
How buyers decide which earnings to pay for when profits swing, and what an owner can do to protect the price.
By Michael D. Rubin, CEO & Founder · September 2026 · 801 words
Buyers value a company with strong revenue but uneven profits on the earnings they believe are sustainable, which usually means averaging or discounting the good years, and then they add structure — earnouts, seller notes or a lower cash price — to cover the risk that profits swing again. Revenue shows the market wants what you sell. Profit is what buyers pay for.
The encouraging part is that inconsistent profits are often explainable. The work is showing a buyer why profits moved and why the stronger level is the one to expect.
Buyers also read the direction of travel. A company whose profits dipped two years ago and have climbed since is seen very differently from one whose best year was the earliest. A clear, explainable trend matters as much as a good average.
Which earnings figure a buyer will use
Buyers price most companies in this size range on adjusted EBITDA: earnings before interest, taxes, depreciation and amortization, after adding back owner perks and one-time costs. When that figure swings from year to year, a buyer has to decide which version to believe. Your job, with your advisor, is to make the case for the most favorable figure the evidence supports. The usual candidates:
- The trailing twelve months (the most recent twelve months), if the trend is up and the reasons are clear.
- A three-year average, if the swings look random.
- A weighted average that counts recent years more heavily.
- The weakest recent year, if the buyer suspects the good years were luck.
Causes buyers forgive, and causes they don't
Not every swing is treated the same. What matters is whether the cause is behind you or built into the business.
| Cause of the swing | How buyers tend to see it | What helps |
|---|---|---|
| One-time events (lawsuit, relocation, storm damage) | Added back if documented | Invoices, settlement papers, clear notes |
| Owner decisions (bonuses, family pay, heavy reinvestment) | Adjusted if reasonable | A clean recast showing normal costs |
| Large project wins and losses | Real volatility; discounted | Backlog, win rates, repeat clients |
| Pricing that lags costs | A problem the buyer will fix and charge you for | Price increases made and holding |
| Rising overhead or weak cost control | Structural; lowers the multiple | Evidence it has been corrected |
| Seasonal or cyclical demand | Accepted if the pattern is consistent | Several years of monthly data |
How deal structure bridges the gap
When the seller believes the strong years represent the business and the buyer is not sure, the two sides often meet through structure. An earnout pays part of the price later if the company hits agreed targets. A seller note means you finance part of the price and are repaid over time. Some buyers offer more cash at closing in exchange for a lower total price.
Each option shifts risk. An earnout tied to profit can be affected by the buyer's own decisions after closing, so the definitions matter, and your transaction attorney should review them closely. Make sure any target is one you can influence and measure, and that you will see the numbers used to calculate it. Our guide to comparing offers when selling your business shows how to weigh cash now against payments later.
What you can do before you sell
If you have a year or two, the most useful work is making the next results steadier and the past results easier to read. Pre-exit consulting covers this in the 12 to 24 months before a sale. Uneven profits also draw more questions in due diligence, so see what causes a sale to fall apart in due diligence as well.
- Recast three years properly. Document every add-back with evidence.
- Study gross margin by job, product or customer. Uneven profits often come from a few bad jobs or unprofitable accounts.
- Fix pricing. Increases that stick are strong proof for a buyer.
- Move to monthly, accrual-based statements. Accrual accounting records income and costs when they are earned or incurred, not when cash moves, so it shows what really happened each month.
- Put together two or three steady years. A consistent recent record changes the conversation more than any explanation.
What we do in that situation
MDR & Associates starts with three years of financials and a financial recast that separates one-time and owner-specific items from the true earning power of the company. That recast goes to market with the confidential marketing package, so buyers understand the story before they draw their own conclusions. Because the firm negotiates multiple letters of intent at the same time, you see how different buyers weigh the same history, and can compare cleaner offers with those that lean on earnouts. When owners or lenders need a formal opinion, business valuation is a separate service.
The first step is a free, confidential opinion of value. Contact us to arrange a discovery meeting.
Where this fitsTexas M&A advisors and business brokers →