How much is my business worth? A plain guide for owners
Valuation · Exit planning · 8 min read ·
Most owners can tell you their revenue to the dollar. Far fewer can tell you what a buyer would pay for the business tomorrow. The gap between those two numbers is where years of work quietly lose value.
Buyers pay for earnings, not effort
A buyer is not purchasing your hours or your reputation. They are purchasing a stream of profit that keeps arriving after you leave. Every valuation method, however technical it sounds, is an attempt to answer one question: how much of this profit survives the handoff?
SDE or EBITDA: which number applies to you
Smaller owner-run companies are usually valued on seller's discretionary earnings (SDE). That is net profit with the owner's salary, perks, and one-time costs added back. It shows what one full-time owner could take home.
As a company grows and has a management team, buyers switch to EBITDA: earnings before interest, taxes, depreciation, and amortization, with a market salary already paid to whoever runs the business. Knowing which lens a buyer will use tells you which number to clean up first.
The multiple is a story about risk
Two businesses with the same profit can sell for very different prices. The multiple a buyer applies reflects how confident they feel. These are the factors that move it most:
- Owner dependence. If customers, key decisions, or the best relationships run through you, expect a discount.
- Recurring revenue. Contracts and repeat customers are worth more than one-off projects.
- Customer concentration. One client above a fifth of revenue is a risk a buyer will price in.
- Clean books. Financials a buyer can verify quickly shorten diligence and protect the price.
- Documented systems. Processes on paper are transferable. Knowledge in your head is not.
Get a real number before you need one
A broker's opinion of value, a formal appraisal, or a conversation with a buyer who knows your industry will each give you a starting point. The point is not the number itself. It's seeing which of the factors above is costing you the most.
The day you sell should be a decision, not a rescue.
Where to start this quarter
Pick the single dependency that would worry a buyer most and spend the next ninety days removing it. That one change often moves your value more than a year of revenue growth.
