Revenue and EBITDA may lead the conversation when a company is being evaluated for acquisition, but buyers need more than headline numbers.

They want to understand whether the company’s performance is sustainable, whether its financial story can be trusted, how effectively earnings convert into cash, and where risk may be concentrated.

That is why certain key performance indicators become especially important during an acquisition.

For business owners preparing to sell, understanding these metrics before due diligence begins can make financial conversations clearer and help identify issues that should be addressed before a buyer starts asking questions.

Here are five KPIs buyers commonly examine when evaluating a company.

What Buyers Are Really Trying to Learn From the Numbers

A buyer is not simply trying to confirm that a business generated revenue and profit.

The larger question is: Can this performance continue after the acquisition?

Financial and operating metrics help buyers assess the sustainability of revenue and earnings, potential cash requirements, and risks that may affect the value or operation of the company after closing.

They also provide insight into the quality of the company’s financial reporting.

If management cannot consistently produce, reconcile, or explain important metrics, a buyer may have difficulty determining whether the numbers accurately represent the business.

The strongest financial reporting does not necessarily make a company look perfect. It makes its performance understandable, supportable, and useful for decision-making.

KPI #1: Quality of Revenue

Revenue growth alone does not tell a buyer how durable that revenue is.

Two companies may generate the same amount of annual revenue while having very different risk profiles.

A buyer may want to understand how much revenue is recurring, repeat, contracted, or dependent on one-time transactions. They may also examine whether recent growth came from organic customer demand, price increases, acquisitions, or other factors.

Discounts, credits, refunds, and unusual transactions can provide additional context.

For example, rapid revenue growth supported primarily by significant discounting may tell a different story than similar growth accompanied by stable pricing and repeat customers.

This is why revenue quality can matter as much as revenue growth.

Buyers are ultimately trying to determine how much confidence they can place in historical revenue continuing after the transaction.

For sellers, that means being prepared to explain not only how much revenue the company generated, but where it came from and what is driving it.

KPI #2: Gross Margin

Gross margin helps buyers understand the relationship between revenue and the direct costs required to generate it.

More importantly, the trend can reveal changes that may not be obvious from revenue alone.

A company can grow sales while experiencing declining gross margins. That could indicate pricing pressure, rising labor or material costs, changes in product mix, or other operational issues.

Buyers may therefore examine gross margin across multiple periods and, where possible, by product, service line, location, or customer segment.

This segmentation matters because company-wide averages can hide important changes.

For example, a higher-margin business line may be shrinking while a lower-margin service is driving most of the company’s recent growth. Consolidated revenue may look positive even though the underlying economics of the business are changing.

When margins fluctuate, management should be prepared to explain what changed, why it changed, and whether the change is expected to continue.

KPI #3: Adjusted EBITDA and Earnings Quality

Adjusted EBITDA is frequently discussed in transactions because buyers want to understand the company’s normalized operating performance.

Reported financial statements can include expenses or income that management believes do not represent the ongoing business. These may include certain one-time costs, unusual events, or other nonrecurring activity.

Adjustments can help create a clearer picture of sustainable earnings—but only when they are supportable.

A credible adjustment should have a clear rationale and supporting documentation and should reconcile back to the underlying financial records.

This is where earnings quality becomes important.

Buyers are not simply interested in the highest possible adjusted EBITDA number. They want to understand whether the earnings presented are repeatable and supported by the actual operation of the company.

Aggressive or poorly documented add-backs can create the opposite effect. Instead of strengthening the financial story, they may raise questions about the reliability of management’s assumptions.

Preparing normalized earnings before diligence allows sellers to identify adjustments, document them appropriately, and anticipate the questions a buyer may ask.

KPI #4: Operating Cash Flow and Cash Conversion

EBITDA does not equal cash.

A profitable company can still require significant amounts of cash to operate.

That is why buyers examine how effectively earnings convert into operating cash flow and where cash becomes tied up in the business.

Accounts receivable, inventory, deferred revenue, capital expenditures, and payment timing can all affect cash generation.

Working-capital requirements are particularly important.

Some businesses experience significant seasonal changes in receivables, inventory, or payables. Others need substantial working capital to support growth.

A buyer therefore needs to understand not only what the business earns, but also how much cash the business requires to maintain those earnings after closing.

For sellers, understanding these patterns before diligence can reduce surprises when working capital becomes part of the transaction discussion.

For buyers, cash-conversion analysis helps connect historical profitability with the actual liquidity requirements of owning the company.

KPI #5: Customer Concentration and Retention

A company can have strong revenue and margins while still carrying significant customer risk.

If a large percentage of revenue depends on one or two customers, losing one of those relationships after closing could materially affect the business.

Buyers may therefore examine how much revenue comes from the company’s largest customers, as well as:

• Contract terms and renewal periods
• Customer retention and churn
• Length of customer relationships
• Changes in purchasing behavior
• Whether relationships depend heavily on the owner

The last point can be particularly important in founder-led businesses.

If major customers primarily maintain their relationships because of the departing owner, a buyer may question whether those relationships will transfer successfully after the acquisition.

Customer concentration does not automatically make a company unattractive. But it represents a risk that buyers may incorporate into valuation, transaction structure, or post-close planning.

Understanding and documenting that risk early allows both sides to evaluate it more clearly.

How Sellers Can Prepare These KPIs Before Due Diligence

One of the biggest mistakes a seller can make is waiting until diligence begins to organize these metrics.

Instead, management should establish consistent definitions and begin tracking the relevant KPIs over time.

The underlying operating data should also reconcile to the company’s financial statements whenever possible.

If revenue reported in an operational dashboard does not align with accounting records, for example, management should understand the reason before a buyer discovers the discrepancy.

Historical source data and supporting schedules should also be preserved.

Finally, sellers should prepare explanations for significant changes, anomalies, and seasonal patterns.

The objective is not to eliminate every unusual result. Businesses change.

The objective is to make those changes explainable and supportable.

How Buyers Should Interpret KPIs in Context

Buyers should also avoid evaluating any KPI in isolation.

A single month, quarter, or year may not accurately represent the underlying business.

Metrics should generally be compared across multiple periods to identify trends and determine whether recent performance represents a sustainable change or a temporary event.

Segmentation can also reveal information that company-wide averages obscure.

Revenue quality, margins, retention, and cash performance may look very different across products, customers, or business units.

Buyers should then connect those historical findings to the post-close plan.

If an acquisition model assumes revenue growth, margin expansion, improved working capital, or stronger customer retention, the historical operating data should provide a reasonable basis for those assumptions.

The purpose of KPI analysis is ultimately not just to understand what happened.

It is to make a more informed decision about what is likely to happen next.

Final Takeaway: Decision-Ready Metrics Reduce Transaction Uncertainty

The strongest KPI package does not make a business look perfect.

It makes the business easier to understand.

Quality of revenue helps show whether sales are sustainable.

Gross margin provides insight into pricing, costs, and the economics behind growth.

Adjusted EBITDA and earnings quality help distinguish reported results from normalized operating performance.

Operating cash flow and cash conversion reveal how effectively earnings translate into cash and how much liquidity the business requires.

And customer concentration and retention help identify where revenue risk may exist after closing.

For sellers, preparing these metrics before due diligence can strengthen the financial story and make buyer questions easier to address.

For buyers, analyzing them together provides a more complete picture of the business they are considering acquiring.

In both cases, better financial information reduces uncertainty and supports better transaction decisions.

Preparing to buy or sell a business?

CO Capital Advisory Group can help identify the metrics, reporting gaps, and financial questions that should be addressed before diligence begins.