Many owners believe valuation is a formula.
In reality, valuation is a risk-adjusted confidence score.
For federal government contractors, buyers are not just buying earnings—they are buying compliance posture, sustainability, and predictability.
The Myth of EBITDA as the Whole Story
EBITDA matters—but it is not decisive.
Two businesses with identical EBITDA can produce wildly different valuations based on:
- Risk concentration
- Compliance maturity
- Owner dependency
- Contract mix and backlog quality
Buyers price certainty, not just performance.
Financial Clarity vs. Financial Performance
Strong financial performance without clarity is discounted.
Buyers expect:
- GAAP-aligned financials
- Clean indirect cost structures
- Reconciled job costing
- Defensible rates
- Minimal post-close surprises
In GovCon, unclear financials raise red flags about allowability, audit exposure, and future profitability.
The Risk Factors That Quietly Destroy Value
1. Customer Concentration
Reliance on one agency, one contract vehicle, or one prime relationship increases risk.
2. Contract Risk
- Short-term contracts without renewal history
- Poor CPARS performance
- Heavy reliance on recompetes
3. Compliance Gaps
- Weak FAR cost allowability controls
- Incomplete policies and procedures
- Unresolved audit findings
4. Owner Dependency
If the business cannot operate without the owner, buyers discount value—or walk away.
Why “Fixing It During Due Diligence” Fails
Due diligence is not the time to discover:
- Unsupported costs
- Weak internal controls
- Incomplete documentation
- Overstated margins
Late fixes erode trust and negotiating leverage.
Prepared businesses command higher multiples because buyers can move quickly and confidently.
Valuation Is Earned Years in Advance
The highest valuations are not negotiated—they are earned.
Owners who focus on:
- Operational discipline
- Risk reduction
- Repeatable systems
- Leadership depth
…create businesses that buyers compete to acquire.
The Takeaway
Valuation is not just about growth.
It is about confidence, credibility, and control.
Exit readiness is what transforms earnings into enterprise value.