How to Determine What My Business Is Worth | Numbers Buyers Use

A solid valuation blends clean financials, owner-pay adjustments, market multiples, and risk factors into a defensible price range.

You don’t need a perfect single number. You need a price range you can explain without hand-waving. That range comes from three things: what the business earns, what similar deals trade for, and what could break those earnings after you step back.

Work through the steps below and you’ll have a buyer-ready range, plus a short note list that answers the question every serious buyer asks: “Why this number?”

How Value Gets Set In Real Deals

Most small businesses sell for what a buyer believes they can safely earn back. Buyers pay for cash flow, stability, and a clean handoff. Lenders want the same story with tighter proof.

• Earnings power. What’s left after normal operating costs.
• Market reality. What comparable businesses trade for in your size band.
• Risk. How likely those earnings are to hold after the owner changes.

Deal structure can change what you net. A higher headline price may include seller financing, earnouts, or working-capital targets that shift the real payout.

Pick A Valuation Method That Fits Your Business

Owner-operated companies usually land on one main approach, then cross-check with another so the range stays grounded.

Income Method (Cash Flow Based)

This approach prices the business off the cash it can produce. In small business sales, that often means a multiple of SDE (Seller’s Discretionary Earnings) or EBITDA. The multiple moves with size, industry, and risk.

Market Method (Comparable Sales)

Comparable sales keep you honest. The trick is matching apples to apples: similar industry, similar earnings, similar terms.

Asset Method (Balance Sheet Based)

If you have heavy equipment, large inventory, or real estate, assets can set a floor. In asset-heavy shops with thin earnings, assets may drive most of the value.

Get Your Numbers Buyer-Ready Before You Touch Multiples

Start with your last three years of Profit & Loss statements and balance sheets, plus the last 12 months as a separate period. Pull the same years of business tax returns. Buyers will reconcile these.

If you want a plain-language reference point for “fair market value,” the IRS guidance on fair market value is useful. It won’t price your company, yet it helps you describe a willing-buyer, willing-seller range.

Normalize Earnings (Where Most Owners Win Or Lose)

Normalization adjusts reported profit so it reflects how the business would run for a new owner. This step keeps you from undervaluing the business, and it keeps you from claiming add-backs a buyer will toss out.

• Owner salary and perks that don’t match market pay for your role
• One-time costs like a move, a lawsuit, or an unusual repair
• Personal spending run through the business
• Non-cash charges like depreciation (used when you’re working with EBITDA)

List every add-back with proof. Invoices, payroll reports, and bank statements turn a claim into something a buyer can accept.

Match The Valuation To The Sale Structure

Decide what’s included: vehicles, equipment, inventory, cash, debt, and any real estate. Your valuation should match the structure you plan to offer, since an asset sale and a stock sale can price differently.

Compute SDE Or EBITDA With One Template

Many small businesses are valued on SDE, which starts with net profit and adds back owner compensation plus documented discretionary costs. Larger firms often use EBITDA to separate operations from any one owner.

Build one worksheet with: revenue, COGS, operating expenses, net profit, add-backs (listed line by line), then normalized earnings (SDE or EBITDA). If you later hire a credentialed valuation analyst, this is the same logic they will test. The AICPA valuation resources page shows what professional valuation work typically includes.

Set A Multiple Range The Way Buyers Think

A multiple is a shorthand for risk, growth, and buyer effort. Two companies with the same earnings can sell at very different multiples.

Start With Comps, Then Pressure-Test

Use closed sales data you can find, broker input, and lender norms. Then pressure-test the range with your own risk factors. If your books are clean and the business runs without you, the range tends to tighten on the high side.

Use Low, Mid, And High

Pick three multiples, multiply each by normalized earnings, then adjust for cash, debt, and working-capital expectations. The output is a range you can defend without getting trapped by a single number.

What Buyers Discount Fast

Buyers pay more for earnings they can keep. They discount earnings that feel fragile. Before you pick your multiple range, grade your business on these drivers.

Customer Concentration

If one client drives a large share of sales, buyers see a cliff. Track concentration by customer, channel, and product line so you can answer questions quickly.

Owner Dependence

If you are the sales engine and the operator, the buyer is buying a job. If a manager runs the day-to-day and systems hold up without you, the buyer is buying an asset.

Proof Behind Growth Claims

Buyers treat projections with caution. Back growth with contracts, pipeline reports, repeat customer data, or clean web analytics trends.

Licenses And Records

Permits, payroll filings, and sales-tax records matter. Clear records reduce surprises in diligence. The SBA market research guide can help you document your market position in a format buyers recognize.

Deal Terms That Change What “Worth” Means

Two deals with the same price can pay you very different money. Price the terms, not only the headline number.

• Seller financing. More seller carry can raise price, and it raises your risk.
• Earnouts. Part of the price depends on performance after closing.
• Working capital targets. You may need to leave a set level of inventory, receivables, or cash in the business.
• Transition time. Training hours and handover length change buyer comfort and your workload.

If you want language that helps you describe scope and limits cleanly, the USPAP standards overview shows how appraisers document method and constraints.

Table: Quick Checks That Push Price Up Or Down

Use this table as a fast scan before you settle on a multiple range.

Area	Green Flags Buyers Pay For	Red Flags Buyers Discount
Books And Tax Records	Clean statements that match returns	Gaps, big unexplained swings
Owner Add-Backs	Documented, repeatable adjustments	Large add-backs with weak proof
Customer Mix	No single client dominates revenue	One client controls sales
Team And Process	Manager runs daily ops	Owner runs every decision
Margins	Stable gross margin with clear drivers	Margin drift from discounting or rework
Assets	Inventory counted, equipment maintained	Dead stock, deferred maintenance
Deal Readiness	Documents ready in one folder	Scrambling for basics after listing
Transition Plan	Clear handover plan and timeline	Vague “I’ll help as needed”

How To Determine What My Business Is Worth Before A Sale

Turn your cleaned numbers into a range, then write down the assumptions behind it. This keeps every conversation consistent across brokers, buyers, and lenders.

Step 1: Choose Earnings Type

If the business depends on you and a buyer will replace you, SDE often fits. If the business has management and the buyer won’t be the operator, EBITDA can be a cleaner lens.

Step 2: Run Three Multiples

Apply low, mid, and high multiples to normalized earnings. Keep notes on why each multiple is plausible for your risk profile.

Step 3: Adjust For Cash, Debt, And Working Capital

Decide what cash stays in the business and what debt gets paid off. If the deal is “debt-free, cash-free,” you price the operation, then settle cash and debt separately at close.

Step 4: Cross-Check With Assets

If your earnings-based number lands below what inventory and equipment would sell for, pause. It can point to weak margins, bloated assets, or a pricing problem that you can fix before listing.

Table: A Simple Valuation Range Worksheet

Fill this with your own numbers and keep it updated as your trailing 12 months change.

Input	Low / Mid / High	Notes
Normalized Earnings (SDE Or EBITDA)	$____ / $____ / $____	Use last 12 months, then compare to 3-year trend
Multiple	__x / __x / __x	Set by size, industry, and risk drivers
Enterprise Value	$____ / $____ / $____	Earnings × multiple
Plus Cash Included	$____	Cash left in business at close
Minus Debt Assumed	$____	Loans buyer will take on
Working Capital True-Up	$____	Adjust for inventory/AR/AP targets
Indicated Price Range	$____ / $____ / $____	Range you can justify in diligence

Mistakes That Shrink The Range

Most valuation pain comes from issues you can fix ahead of time.

Mixed Personal And Business Spending

It creates doubt and slows diligence. Clean separation makes add-backs believable.

No Working-Capital Plan

Owners often fixate on price and forget what must stay in the business. That can cut what you net even when the headline price looks strong.

Slow Document Response

Keep core items in one folder: statements, tax returns, lease, payroll summaries, major contracts, asset list, insurance, permits, and a short operations note. Fast answers signal a well-run business.

When A Formal Valuation Makes Sense

Some situations call for a formal report: partner disputes, estate work, investor deals, SBA lending, or a sale with complex terms. A credentialed analyst can write assumptions and discounts in a way banks and courts accept.

Even if you pay for a report, the prep work above reduces cost. Clean books and clear add-backs mean fewer billable hours.

Next Actions You Can Take This Week

Pull three years of statements and tax returns plus the last 12 months. Build the SDE or EBITDA worksheet. Document add-backs with proof. Set a low, mid, and high multiple range and write down the drivers behind it. That is what turns “worth” into a number you can negotiate.