Understanding Business Valuation: What's Your Company Actually Worth?

Why Owners Overvalue Their Businesses

The most common mistake in a business sale is a seller pricing their company based on what they need to retire, not what the market will pay. These two numbers are rarely the same.

Business valuation is grounded in financial performance, risk, and comparables — not personal financial goals.

The Most Common Valuation Methods

1. Seller's Discretionary Earnings (SDE) — Small Businesses

For businesses under $5M in revenue, valuations are typically based on Seller's Discretionary Earnings — your net profit plus the owner's salary and any discretionary expenses run through the business.

A typical SDE multiple for a service business ranges from 2.0x to 3.5x, depending on risk, growth, and systems maturity.

2. EBITDA Multiple — Mid-Market

For larger businesses, buyers focus on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Multiples range from 4x to 8x depending on industry and scale.

3. Asset-Based Valuation

For asset-heavy businesses (manufacturing, real estate), the underlying asset value may be the primary driver.

What Increases Your Multiple?

• Recurring revenue — predictable cash flow reduces buyer risk
• Strong management team — reduces owner dependency
• Long-term customer contracts — stability
• Clean books — reduces due diligence risk
• Growth trajectory — buyers pay for momentum

What Decreases Your Multiple?

• Heavy owner dependence
• Customer concentration (one client > 20% of revenue)
• Declining revenue trend
• Undocumented processes
• Messy or inconsistent financials

The Bottom Line

Don't guess at your valuation. Get a professional assessment before you start any conversations with buyers — it gives you leverage, sets realistic expectations, and reveals what to fix before going to market.