When business owners talk about value, the conversation often begins with EBITDA.
When investors evaluate a company, that’s where the conversation begins, not where it ends.
As Craig Levy recently shared in his discussion with Kevin Kaye, investors aren’t simply looking for strong financial results. They’re asking a more fundamental question: Will the earnings survive after the seller leaves?
That distinction changes everything.
Investors Buy Confidence
One of the most memorable takeaways from our conversation was simple:
Enterprise value is earnings times confidence.
A company may produce strong earnings today, but investors want confidence those earnings are sustainable tomorrow.
That means looking beyond the income statement to assess factors such as:
- Revenue predictability
- Customer concentration
- Management team depth
- Cash flow quality
- Operational discipline
- Scalability
The goal isn’t simply to determine how much a company earned. It’s to understand how reliably it can continue earning.
Looking Beyond the Story
Every business has a story. Investors want evidence.
Craig noted that his evaluation process begins by identifying potential deal-breakers before assigning scores or rankings. While technology and AI can help screen opportunities, judgment still drives investment decisions.
As he explained:
“The scorecard informs. The thesis decides.”
Investors want to know what isn’t immediately visible. They examine the balance sheet, cash flow, customer relationships, operational processes, and management structure to understand what is truly driving performance.
Sometimes a company can score well on paper and still fail to earn investor confidence.
What Makes a Business Attractive?
Investors are often drawn to businesses that demonstrate:
- Recurring or predictable revenue streams
- Durable profit margins
- Clean, reliable financial reporting
- Limited reliance on adjustments and add-backs
- Growth that can be sustained operationally
- Leadership teams that extend beyond the founder
These characteristics help create confidence that success is repeatable rather than temporary.
Red Flags That Raise Concern
Just as important as what attracts investors is what causes them to walk away.
Common warning signs include:
- Add-backs doing most of the work to support EBITDA
- Missing or incomplete financial information
- Unquantified liabilities
- Slow responses during due diligence
- Businesses overly dependent on one individual
In many cases, the issue isn’t a specific risk. It’s uncertainty.
Investors are constantly evaluating whether the story presented is supported by the underlying facts.
When People Become More Important Than Numbers
Early in a transaction, financial performance receives the majority of attention.
As the process advances, the focus gradually shifts.
Craig described how diligence often begins with numbers but eventually becomes a people conversation.
Can department leaders explain their metrics?
Do leaders own their results?
Will the business continue operating successfully without the founder at the center of every decision?
By the time a deal closes, confidence in the management team may be as important as confidence in the financial statements.
As Craig put it:
“Numbers get you to the table. People get you across the line.”
The Bottom Line
Companies don’t create value through earnings alone.
They create value through predictable performance, operational discipline, trustworthy reporting, and leadership teams capable of sustaining success.
Strong EBITDA may open the door, but confidence is what ultimately drives investment decisions.
Or, as Craig summarized it:
Enterprise value is earnings times confidence.
Watch the full conversation to learn why enterprise value is earnings times confidence.