Do Buyers Prefer Growth or Cash Flow?

Hey ,

This week’s question is one I hear constantly:

“What better for valuation, fast growth or profit?”

Focusing on one or the other can change your business tactics quite decisively, and ultimately my advice is not to take excessive risks just to find a highly priced buyer. Let me explain:

🧭 Two Types of Buyers, Two Very Different Playbooks

Going for growth

 The best valuations you can get are VC backed ‘blitzscaling’ investors, where all that matters is increased market share. Often these valuations aren’t based on the how your business is doing right now, but its potential.

These guys can pay double or triple other investors and they look for:

• Market size

• User acquisition

• Top-line expansion

• Future upside (not today’s profits)

Obviously this type of investor is the best case scenario, and if you can find one absolutely go for them, but I don’t recommend them for several reasons;

1.  They are few and far between. You need to be at the right place at the right time, and if you can’t get a deal you’ll be stuck having to fix your growth pains on your own, usually at great expense

2. These type of funds are very cyclical, when interest rates increase and credit markets dry up, so does their capital.

3. You may also get pressured to go into further loss making ‘growth mode’ which makes you reliant on future funding rounds. If they pull the plug, you’re toast.

All of these mean it’s a gamble to go after these investors. Even if pulling off a deal means a great price, sacrificing profitability to reach it is a major risk if it falls through.

Cash Flow Buyers

These are private equity firms, individual investors, and family offices, they care about:

• Stability

• Earnings

• Operational efficiency

• Reliable returns from day one

There’s several reasons why you should assume this would be your buyer. On their side:

1. There’s more of them

2. They can finance your deal easier if you’re profitable

3. Even if it’s a lower multiple, the deal is much more likely to actually close

But on your side, focusing on cash flow means you can comfortably wait for a great deal to come through, and you’re not under pressure to close an investor quickly, giving you more leverage in negotiations. Also, let’s not forget the simple peace of mind being profitable creates. Running a business is stressful enough, knowing you have cash flow makes your work mentally much easier.

🧱 Bigger Business, Bigger Buyer Pool

Here’s where it gets interesting. I recommended focusing on profit, but one extra benefit of growing quickly is that once your business hits eight-figure revenue you unlock a new class of buyers.

High-quality PE firms and institutional investors start to take notice, even more so if you have a positive EBITDA margin. Again it’s a riskier bet but worth keeping in mind

📊 So what do buyers actually prefer?

Although you see a lot of incredibly high valued VC deals, the practical reality is you want the most realistic type of buyer, and having cash flow means you’re in the best spot to negotiate - you have all the cards.

🔜 Next Week:

How I got out of £2M of personally guaranteed debt in my business.

My personal journey from financial stress to financial freedom, and how building equity made it possible.

Here’s to your next deal,

Unlocking Wealth Weekly Team