8 Principles of Building a Valuable Small Business

Entrepreneurs usually start out doing the work they’re good at, their craft. Whether it’s fixing HVAC systems, writing code, or selling a product. However, running and growing a valuable business requires a different skill set than doing the work you did in the early days. 

That’s the hard lesson Kevin Donnelly learned after building two companies in telecom and security systems. His first attempt nearly ended in financial disaster. 

The turning point wasn’t a new product, better pricing, or clever growth hacks. It was learning how to run a real business — one with systems, leadership, and financial clarity.

Years later, as a CEO coach and advisor, Kevin distilled his experience into a framework that any small business owner can use to build a more scalable, transferable, and ultimately more valuable company.

Kevin recently hosted a live workshop in the Mainshares Network, where he shared his framework: the 8 principles for building a valuable SMB. Rooted in private equity wisdom, decades of experience, and patterns from thousands of successful exits, this article unpacks the key insights he revealed.

The shift from the manager’s metric to the owner’s metric

Before we jump into the framework, it’s important to understand the mindset that underpins it: the difference between thinking like a manager and thinking like an owner.

Managers optimize for profit. Owners optimize for value.

Fundamentally, the value of a business is driven by two variables: profit × valuation multiple.

Most entrepreneurs spend all their time on the left side of that equation — profit. But savvy operators also invest in the right side: building the kind of company that can demand a higher multiple from a buyer.

That’s what this framework is about: focusing not just on earnings, but on the attributes of the business that make it worth more in an acquisition.

Let’s take a look at the 8 drivers of business value:

The 8 drivers of business value

1. Financial performance

Buyers don’t just look at profit. They look at the quality of your numbers. “It’s like flying an airplane. You gotta know your altitude, your speed, and how much fuel you got in the tank — otherwise, you crash,” Kevin says. That means:

• Timely, accurate monthly financials

• Managerial clarity (e.g., gross profit by segment, cost center visibility)

• Forward-looking forecasts and budgets, not just historical financials 

• Clean accounting practices (and ideally reviewed financials)

Kevin encourages a “crawl, walk, run” approach to build up the muscle it takes to get your financials in tip-top shape. He breaks it down as follows:

1. Crawl: Deliver monthly financials by the 15th of each month.

2. Walk: Segment P&L by business line or service.

3. Run: Operate on a rolling 12-month budget with monthly reviews.

This type of financial transparency helps owners make smarter decisions year-round. And, when the business is ready to be sold, buyers will be impressed by the rigor of your documents compared to other sellers they’re speaking to. 

2. Growth potential

What’s the upside? Buyers pay more when they can see clear paths to growth. But not all growth is equal.

There are three pillars that underpin how buyers will view your growth potential: teachable, valuable, and repeatable. 

Take a school photo business as an example:

• Valuable to parents

• Easy to train new staff

• Predictable annual demand

Contrast this to a similar photography business that services project-based wedding events. The former beats this on all three pillars every time. 

Your job is to design products and services that scale without you. The more scalable your business model, the higher the valuation multiple you can command.

3. Switzerland structure

Have an obsessive focus on making your business run independently. 

That means:

• No single customer >15% of revenue

• No single vendor or employee is irreplaceable

• No owner is at the center of every key decision

How? Train and cross-train your team. Diversify your customer base. Document your processes. If one team member leaves the company (including yourself), or one customer drops out, your business needs to be able to carry on as a revenue-generating machine, regardless of which stakeholders are involved. 

The ultimate goal is to “never rely on one employee, supplier, or customer,” Kevin notes. 

4. The cash flow teeter-totter

Cash-hungry businesses are worth less, all else being equal.

Kevin favors a seesaw metaphor: the heavier the cash needs, the lower the valuation. In an acquisition, buyers don’t just buy your P&L — they have to fund working capital too.

Metrics like DSO (Days Sales Outstanding) and DPO (Days Payable Outstanding) become critical in assessing how fast cash moves through the business. Improving payment terms, collecting upfront, or smoothing out seasonality can materially impact valuation.

5. Recurring revenue

This is the holy grail. Consider two different security companies, each doing $1M in annual revenue. 

• One installs $100k camera projects (one-off revenue)

• The other bills $39.99/month for monitoring services (recurring)

The recurring revenue business might sell for 5-10x earnings. The project-based one? Maybe  2–3x.

Recurring revenue builds predictability, retention, and ultimately durability for your business. It’s what buyers want to see. And while recurring revenue is most commonly seen in the software business, with a little creativity, you can incorporate a recurring pricing model into practically any industry.

6. Monopoly control

What makes you different?

Kevin encourages founders to carve out a unique position in their market. That could mean:

• Serving a niche (like Panasonic side-stepping Apple in the laptop market and creating the niche “ToughBook” for police departments)

• Developing IP or trade secrets

• Offering an essential service that customers can’t live without

Differentiation gives you pricing power, which drives margins, and more margin means more cash to reinvest in growth.

7. Customer satisfaction

Use your customers as lighthouses for your business. Not only does customer satisfaction speak volumes to potential buyers, but happy customers have higher retention, referrals, and lower customer acquisition costs.

Deliver great service. Collect reviews. And build systems around customer feedback loops.

8. The owner’s role (a.k.a. hub and spoke risk)

This may be the most important — and most difficult — principle. A business that’s too dependent on the owner has very little value.

Kevin calls it the “hub and spoke” problem: when the owner is the central hub through which all decisions, sales, and operations run. As a result, the “business” is more so a job for the owner and has little value on its own. 

The antidote?

• Build a leadership team that can take ownership of sales, ops, and finance.

• Implement a business operating system (Scaling Up or EOS).

• Shift from being the lead singer to the orchestra conductor.

Kevin encourages you to ask yourself, “Can you go fishing for two weeks and have the business keep rolling without you? That’s the test.”

Why these principles matter — even if you never sell

There’s a paradox in all this: The more sellable your business is, the more enjoyable it is to own.

Why? Because sellable businesses are:

• Less stressful to operate

• More resilient to shocks

• Easier to scale

• More likely to attract top talent

Whether you sell, hold, or pass your business on, these eight principles improve your odds of long-term success.

How to put it into practice

Kevin uses a tool called the Value Builder Score to measure a business’s strength across these drivers. “Businesses that score 90+ on the Value Builder Score tend to sell for double the multiple of average businesses.”

Even if you’re pre-acquisition, running your target through a value audit can help you:

• Identify blind spots

• Focus your first 100 days post-close

• Build a roadmap for value creation

And once you’re operating, start small:

• Implement monthly financial reviews

• Stack-rank key employees by key responsibilities

• Identify one product that’s teachable, repeatable, and valuable

• Run your first quarterly planning session

You don’t have to do everything at once. But you do have to start.

Build a business that doesn’t own you

The end goal of business ownership isn’t just income — it’s freedom. The freedom to take a vacation, grow, and exit on your own terms. 

As Kevin says, “Real value comes when you own the business — and it no longer owns you.” Use these eight principles as a practical roadmap to building a business that’s worth something, whether you ever sell it or not.

Thanks again to Kevin for sharing his insights in the Mainshares Network! You can get in touch with him on Linkedin or email.

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