How much is my business worth?
A privately held business is usually worth a multiple of its recast earnings, the profit a new owner would see once one time and personal expenses are added back to the tax return.
The multiple reflects risk: recurring revenue, customer spread, margins, staffing and how much of the business depends on the owner. Two companies with identical profit can be worth very different amounts because of those factors.
How are valuations calculated?
The work starts with three years of tax returns and a current year profit and loss statement. Reported profit is rebuilt into a normalised earnings figure, then compared with what buyers have paid for similar businesses and what a lender would support.
A credible valuation is a range, not a single number, and it is always tied to the quality of the records behind it.
What is the difference between SDE and EBITDA?
Seller discretionary earnings, or SDE, includes a fair salary for the owner because the buyer will step into the job. It is the standard measure for owner operated businesses.
EBITDA excludes owner compensation and is used for larger companies run by a management team. Using the wrong one is one of the most common ways owners misread their own value.
What are add backs?
Add backs are expenses that would not continue for a new owner, added back to profit so the earnings picture is honest.
- Owner salary, payroll taxes and personal benefits
- Interest and depreciation
- One time legal, settlement or repair costs
- Personal vehicles, travel or phone charges run through the business
- Family members on payroll who do not work in the business
What drives multiples up or down?
- Recurring revenue and contracts, which lift the multiple
- Customer concentration, where one account carries too much revenue, which lowers it
- Owner dependency, where the business needs you daily, which lowers it sharply
- Margins that hold up over time rather than spike once
- A trained team likely to stay through the transition
- Equipment condition and whether capital spending is due
- Working capital and inventory needed to run the business day one
What does SBA financeability do to value?
A business a bank will lend against reaches far more buyers, because most individual buyers need financing. Clean records, transferable licences, an assignable lease and earnings that cover the loan payment with room to spare all widen your buyer pool, and a wider pool supports a stronger price.
What does a valuation not do?
A valuation is not an appraisal for a court, a lender or a tax filing, and it does not guarantee a sale price. The market sets the final number. What a valuation does is tell you where to start, what is holding the number down and whether the timing works for you.
What are the next steps?
Start with the free business valuation for a fast estimate, or use the complimentary business analysis when you want the deeper review with documents, add backs and financing stress tests. When you are ready to move, read how to sell a business.
Ready to talk in private?
Every conversation is confidential and there is no obligation to list.
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