What Is My Business Actually Worth?

The short answer: your business is worth what a qualified, motivated buyer will pay for it. Everything else is context. Here is how buyers get to their number.

The foundation: EBITDA

For most established, owner-operated businesses, valuation starts with EBITDA: earnings before interest, taxes, depreciation and amortization. It is the closest thing to a standard measure of true earnings across businesses with different owners, debt and tax situations.

A buyer applies a multiple to your adjusted EBITDA to arrive at enterprise value. The multiple depends on your industry, size, growth and how much risk the buyer sees.

EBITDA multiples by industry

These ranges are a starting point for lower-middle market businesses, not a promise. Two companies in the same industry can land at opposite ends of the range.

The middle half of the market for businesses earning over $1M, from thousands of comparable listings, adjusted down from asking prices. Smaller businesses trade lower. For a range built on your own numbers, use the valuation range calculator.

A home services company with mostly recurring revenue and a strong manager in place can trade near the top of its range. One with no contracts and full owner dependency can trade below it.

What pushes the multiple up

• Recurring revenue. Contracts, subscriptions and maintenance agreements give a buyer predictable cash flow, one of the most powerful value drivers there is.
• A management team. If the business can run without you for six months, buyers pay more.
• A diversified customer base. No single customer large enough to hurt the business if it left.
• Clean financials. Tax returns that match the P&L that matches the books.
• Steady growth. Consistent revenue and earnings growth signals momentum and lowers perceived risk.
• Documented systems. Written processes show the business is an asset, not a job.

What pulls it down

• Owner dependency. If the key relationships live in your phone, the buyer is inheriting risk.
• Customer concentration. One very large customer often leads to a lower price or an earnout.
• Messy books. Personal expenses, undocumented add-backs and unreported cash all erode trust.
• Declining revenue. Even a small drop in the most recent year invites hard questions.
• Deferred investment. Worn equipment, facility issues or outdated systems the buyer will have to fix.

SDE or EBITDA?

Smaller owner-operated businesses are often valued on seller's discretionary earnings (SDE), which adds the owner's salary and benefits back to profit. As a business grows and has management beyond the owner, buyers move to EBITDA as the baseline. Which one applies to you changes the multiple, so be sure you are comparing like with like.

Add-backs: the adjustments that matter

Adjusted (or normalized) EBITDA is usually higher than what your tax return shows. Legitimate add-backs include:

• Owner pay above what it would cost to hire a manager to do your job
• One-time legal, consulting or recruiting costs that will not recur
• Personal expenses run through the business
• Depreciation and amortization, which are non-cash

Be careful. An aggressive add-back schedule invites pushback and can derail a deal in diligence. A good rule: if you would be uncomfortable explaining an add-back to the buyer's accountant, leave it out.

A quick way to estimate

What a formula cannot tell you

An estimate is a starting point. The price you actually achieve can differ because:

• A strategic buyer may pay more when combining with you creates value for them
• Deal structure (cash at close, seller note, earnout) changes what the headline number is worth
• Taxes and fees change what you take home
• Market conditions at the moment you sell matter

To see what a headline price becomes after debt, fees and taxes, try the net proceeds calculator.