Most professional business valuations rely heavily on the Market Approach. This method involves looking at the profit multiples (like SDE or EBITDA) from recent sales of comparable companies in your specific industry.
For example, if similar manufacturing companies in your sector recently sold for an average of 5x SDE, a valuator will start by applying that 5x multiple to your company’s SDE. However, a true valuation is never a single, static number.
The baseline multiple fluctuates based on macroeconomic conditions, interest rates, and sector demand. More importantly, it shifts based on the specific health and risk profile of your business. A company with high growth or proprietary technology might command a 6x premium, while a riskier, owner-dependent competitor might be discounted to a 4x multiple.
1. Financial Baseline
Select the category that best matches your primary business operations.
Seller's Discretionary Earnings (SDE) is the true, total cash flow a business generates for a single owner-operator, calculated by taking net income and adding back the owner's salary, personal perks, and one-time expenses.
The liquidation value of physical equipment and real estate.
2. Risk & Performance Factors
How much of your revenue is tied to your top 3-5 customers? If losing a single client would devastate your profit, buyers will heavily discount your multiple to account for that risk.
Can the business operate smoothly for 30 days if you (or your top employee) step away? Businesses that run on documented systems and management teams sell for a premium over owner-dependent jobs.
How reliable is your future income? Annual contracts and subscriptions command a much higher valuation than project-based, unpredictable, or seasonal sales.
Is your revenue trending up, flat, or declining over the last three years? Buyers pay a premium for a proven trajectory of growth, not just historical performance.
Are your profit margins improving as you grow, or are operating costs eating into your bottom line? A business that becomes more profitable as it scales is highly attractive to acquirers.
Are your books professionally managed (accrual basis, clean tax returns, clear separation of personal expenses)? Sloppy financials kill deals during due diligence or lead to massive price reductions.
Are you heavily reliant on a single supplier for your core inventory or software? If one vendor changing their pricing or cutting you off could cripple your business, it's a major red flag for buyers.
Do you have a "moat" like intellectual property, exclusive geographic rights, or a deeply entrenched brand? The harder it is for a new competitor to steal your market share, the higher your multiple.
Please fill out Industry, Earnings, and Asset Value.
