Hi {{name}}
Welcome to Cutting Through The Fog.
Each week I share the thinking and frameworks I’ve used (and learned the hard way) to help you build with more clarity, more momentum, and fewer avoidable mistakes.
This week it's Exit Criteria.
Specifically, what a trade buyer is actually looking at when they look at your business and why almost every early-stage founder is thinking about the wrong number.
KEY INSIGHTS THIS WEEK
A trade buyer is not buying what you’ve done in the past. They're buying your future.
Revenue growth is the single most important number in your business.
Everything else is secondary.
That, of course, is depending on the sector you are at.
Let’s take the Food sector.
If you're posting 10% + EBITDA* as an early-stage brand, you are almost certainly underinvesting in growth.
No buyer will pay a premium for a business that's profitable but slow. They will pay a very large premium for a business that's growing very fast.
* Earnings Before Interest, Tax, Depreciation and Amortisation. A measure of how profitably a business runs its core operations before fixed overhead costs like loan interest, rent, and equipment are factored in.
The question founders get wrong
Most founders, when they start thinking about exit, ask the wrong question. They ask: how do I make the business as profitable as possible before I sell?
It's a logical instinct. Profit looks like success. A healthy EBITDA feels like something to be proud of. But in the world of consumer food and FMCG trade acquisitions, chasing profitability too early is one of the most common and costly mistakes I see.
Here's the thing a trade buyer is actually asking when they look at your business:
What will this business be worth to us in three years with OUR distribution, OUR resources, and OUR team behind it?
They are not buying your history. They are buying your trajectory. And trajectory is written in revenue growth, not profit.
Revenue growth is the only number that matters
Let me be as direct as I can about this.
For an early-stage consumer brand looking to exit via a trade sale, revenue growth is the most important metric in the business. Above gross margin. Above EBITDA. Above headcount efficiency. Above everything.
The golden benchmark is 50% year-on-year revenue growth. If you are hitting that, your business will attract serious interest and command a multiple above 2.5x revenue. If you are growing at 20%, you have a decent business. If you are growing at 10%, you have a problem. And a buyer will price that problem into their offer.
THE NUMBERS A TRADE BUYER LOOKS AT FIRST
Metric | What They Want to See |
|---|---|
Revenue (minimum threshold) | £8M - £10M to attract serious interest |
Revenue growth (YOY) | 50%+ is golden. Below 20% is a red flag. |
Revenue multiple at exit | 2.5x+ if growth is strong. Less if it isn't. |
EBITDA | Largely irrelevant in early years. |
Revenue per head | At least £500K per employee (outsourced model) |
Consumer marketing spend | At least 10% of net revenue |
Why too much profit is actually a red flag
This is the part that surprises founders the most, so I want to be clear about it.
If you are generating more than 10% EBITDA as an early-stage consumer brand, the most likely explanation is not that you are running an exceptionally efficient business. It is that you are not investing enough in the market to drive future growth.
That profit sitting on your P&L should be in the market. It should be funding listings, distribution, trade marketing, consumer marketing, sampling, PR. It should be building the brand and growing the revenue line. If it isn't, a sophisticated trade buyer will see it immediately and they will ask the uncomfortable question:
Why isn't this business investing in itself?
The answer, usually, is one of two things. Either the founders don't know where to invest, or they're holding back because they want the profit to look good at exit.
Neither reflects well on the business.
THE TAKE
Ask yourself this question honestly:
What is my revenue growth rate over the last twelve months? And is every pound of profit sitting on my P&L genuinely undeployable or is it there because I haven't decided where to invest it yet?
If the answer to the second question makes you uncomfortable, that's the work.
Profit is not the prize at this stage. Revenue growth is. Invest accordingly.
Next week: gross margin, the NPD* trap, and why £1M in one market is worth more than £100K in ten.
*New Product Development. The process of creating and launching new products.
Final thought
No buyer will ever pay a premium for a business that chose profit over growth when it should have been growing.
They will look at your revenue trajectory, see where the investment stopped, and price the gap.
Invest in the business. Build the revenue. The valuation takes care of itself.
