ncreasing EBITDA creates value.

But sometimes the biggest value-creation opportunity isn’t increasing EBITDA.

It’s changing what kind of business investors believe they are buying.

Consider a company generating £10 million of EBITDA.

At an 8x multiple:

Enterprise Value = £80 million

At a 12x multiple:

Enterprise Value = £120 million

At a 20x multiple:

Enterprise Value = £200 million

Same £10 million EBITDA.

Potentially £120 million difference in enterprise value.

Of course, valuation is never that simple and no individual initiative guarantees a particular multiple.

But it illustrates an important principle:

Value creation is as much about improving the quality and future potential of the business as it is about increasing today’s earnings.

The metric isn’t always EBITDA

Traditional businesses are frequently valued primarily by reference to earnings.

But investors may use very different metrics when assessing businesses with characteristics such as recurring revenue, high retention, strong organic growth, proprietary technology or significant scalability.

Depending on the sector, investors might focus on:

Annual Recurring Revenue (ARR)

Net Revenue Retention (NRR)

Gross Revenue Retention (GRR)

Recurring revenue percentage

Gross margin

Organic growth

Free cash flow

Return on invested capital

Customer acquisition cost and lifetime value

Revenue per employee

Market share

Contracted backlog

The strategic question therefore becomes:

Which metrics demonstrate that tomorrow’s earnings could be substantially more valuable than today’s?

Example 1: Turn transactions into recurring revenue

Imagine a technology-enabled services business generating £20 million of revenue.

Most customers currently purchase individual projects.

Management could simply focus on selling more projects.

Or it could ask whether part of the proposition can become subscription-based.

Perhaps monitoring.

Analytics.

Data.

Compliance.

Software.

Support.

Intelligence.

A £20 million project-based business and a £20 million business with a substantial proportion of contracted recurring revenue can present very differently to investors.

Why?

Because recurring revenue potentially provides greater visibility over future cash flows.

The important KPI therefore becomes not only revenue growth.

It becomes:

ARR + retention + recurring revenue percentage.

Example 2: Don’t just sell more — retain more

Imagine a SaaS business with £10 million ARR growing at 30%.

That sounds attractive.

But suppose it loses 25% of its customers each year.

A significant proportion of new sales is simply replacing revenue that disappeared.

Now imagine another business growing at the same headline rate but with extremely strong retention and customers increasing their spending over time.

The quality of that growth is fundamentally different.

This is why Net Revenue Retention can become such an important value metric.

If existing customers consistently expand their spending, future growth becomes less dependent on acquiring entirely new customers.

Growth begins compounding.

That can materially change investor perception.

Example 3: Move from labour to scalability

Consider a professional-services company.

To double revenue, it broadly needs to double people.

That can be a very successful business.

But there is a natural constraint.

Now imagine the company captures some of its expertise within software, data, intellectual property or a repeatable platform.

Revenue begins increasing faster than headcount.

The metric to watch changes.

Revenue per employee.

Gross margin.

Recurring revenue.

Technology-generated revenue.

The business may gradually move from being perceived purely as a people-dependent service organisation towards a technology-enabled, more scalable model.

That change in perception can be extremely valuable.

Example 4: Customer concentration

Suppose a £50 million revenue business generates £20 million from one customer.

The numbers may look excellent.

But 40% customer concentration represents significant risk.

A buyer will ask:

What happens if that contract disappears?

Now imagine management spends three years growing other customers while maintaining the original account.

Revenue reaches £70 million and the largest customer now represents perhaps 20%.

EBITDA may have increased.

But something else happened too.

Risk decreased.

Sometimes enterprise value is created by removing reasons for investors to discount the business.

Example 5: Contracted backlog

Consider an engineering or infrastructure business with £100 million annual revenue.

One company enters January needing to win most of that year’s work.

Another enters January with £80 million already contracted.

Both may ultimately deliver identical revenue and EBITDA.

But the visibility of those earnings is very different.

The second business can potentially demonstrate a strong contracted order book and future revenue visibility.

That can strengthen confidence in forecasts.

The KPI therefore isn’t simply revenue.

It’s:

Backlog and forward revenue coverage.

Example 6: Cash conversion

Imagine two businesses each generating £10 million EBITDA.

Business A converts £9 million into operating cash.

Business B converts £3 million because growth constantly absorbs working capital and capital expenditure.

Are they really economically equivalent?

Not necessarily.

Investors ultimately care about cash.

That makes free cash flow conversion a potentially powerful value metric.

Improving debtor days, inventory turns, supplier terms and capital discipline may create substantial shareholder value without adding £1 to headline EBITDA.

Example 7: Build a platform, not simply a product

Some of the largest valuation changes occur when a company expands the economic model around its core product.

A sports business might begin with information or analytics.

Then add subscription intelligence.

Then data APIs.

Then enterprise products.

Then workflow tools.

The customer relationship changes.

Instead of repeatedly selling individual products, the business becomes embedded in how customers operate.

That can create:

Recurring revenue

Higher retention

Proprietary data

Network effects

Higher switching costs

Multiple revenue streams

The strategic objective isn’t to describe an ordinary business as a platform.

Investors will see through that immediately.

It’s to actually build the economics of one.

Example 8: Intellectual property and proprietary data

Two businesses may produce similar financial results.

But one owns little that competitors cannot reproduce.

The other has years of proprietary data, unique technology, patents, algorithms, licences or intellectual property.

That can affect competitive advantage.

The question becomes:

What does this business own that would be difficult, expensive or time-consuming for someone else to recreate?

A defensible competitive advantage can influence how investors think about the durability of future earnings.

Moving from 8x towards 20x

There isn’t a checklist that mechanically turns an 8x business into a 20x business.

Markets don’t work like that.

But businesses attracting premium valuations often demonstrate a combination of characteristics:

High organic growth

Recurring and predictable revenue

Strong retention

Expanding customer economics

High or improving margins

Excellent cash conversion

Low customer concentration

Scalability

Proprietary technology or data

Large addressable markets

Strong management teams

Low dependency on individual founders

Clear competitive advantages

Credible future growth

The more of those characteristics a business can genuinely demonstrate, the stronger the investment proposition can become.

The CFO should understand the valuation algorithm

This is where strategic finance becomes much more interesting.

A CFO shouldn’t only ask:

“How do we increase EBITDA next year?”

They should understand how investors are likely to value the company.

What KPIs matter in this sector?

What are premium businesses doing differently?

Where does the company sit against those benchmarks?

Which weaknesses are depressing the investment case?

What could management change over the next three years?

Sometimes investing £2 million today might reduce short-term EBITDA but create technology, recurring revenues or infrastructure capable of making the business significantly more valuable later.

Optimising only EBITDA could therefore produce exactly the wrong strategic decision.

Build backwards from the valuation you want

If shareholders ultimately want a premium valuation, start with the characteristics a premium buyer will expect.

If the aspiration is:

20x EBITDA

don’t simply ask how to negotiate a 20x multiple.

Ask:

What would this business genuinely need to become for a sophisticated investor to believe it deserves one?

Then work backwards.

Perhaps ARR needs to increase.

Perhaps retention needs to improve.

Perhaps customer concentration needs to fall.

Perhaps margins need to expand.

Perhaps proprietary technology needs to be built.

Perhaps international growth needs proving.

Perhaps management needs strengthening.

Perhaps cash conversion needs transforming.

Those become strategic KPIs.

And suddenly the three-year plan isn’t simply a budget.

It’s a value-creation roadmap.

Because the greatest increase in shareholder value doesn’t always come from producing more EBITDA.

Sometimes it comes from building a fundamentally better-quality business around it.

LMC Advisory

Strategic Finance | Treasury | Leadership | Value Creation | Social Impact

Helping founders, CEOs, boards and investors identify the metrics, strategic levers and business-model changes that can drive sustainable growth and premium enterprise value.