Value My Business: Methods, Multiples, and Steps
Taylor Wallace
March 15, 2023 ⋅ 15 min read
This article was originally written in September 2025 and has since been updated with new discoveries and research in January 2026.
If you typed “value my business” into Google looking for a single, clean number, you’re not alone. The hard part is that buyers do not buy revenue, they buy risk-adjusted earnings, and they price that risk through both deal structure and proof. The value of a business is closely linked to its ability to produce future profits, making your business worth a reflection of its potential. Understanding your business's worth is essential for planning your business's future, and an accurate business valuation provides a transparent and pragmatic view of your business's market worth.
A more useful goal is a defensible range that maps to fair market value (what a willing buyer and seller would agree to, with reasonable knowledge and no pressure). That range moves based on earnings quality, concentration, growth durability, and the terms you accept, so it’s normal for two owners with similar revenue to land in different places. Business valuations are crucial for a wide range of companies, from budding start-ups to well-established enterprises, and are often used when a company is looking to sell all or a portion of its operations. Business valuation can also be used for taxation and as part of divorce proceedings. Estimating the fair value of a business is both an art and a science.
If you want a fast starting point, start with a free business valuation and use it as a set baseline that you can monitor and improve before you ever go to market.
The Importance of Business Valuation
Business valuation is more than just a number, it’s a vital process that gives business owners, investors, and prospective buyers a comprehensive understanding of a company’s financial health, growth prospects, and standing in the current market. Whether you’re considering selling, merging, or expanding your business, an accurate business valuation determines the current market value of your company by analyzing assets, liabilities, cash flow, and anticipated future profits.
A well-executed business valuation is essential for making informed strategic decisions. It helps you see where your business stands in relation to industry peers, identify areas for improvement, and set realistic expectations for negotiations. By understanding your business’s value, you can confidently approach the market, attract the right buyers or investors, and plan for the future with clarity.
Ultimately, business valuation is not just about preparing for a sale, it’s about gaining a comprehensive understanding of your company’s worth in the current market, so you can make decisions that drive long-term value and success.
The Two Earnings Numbers Buyers Care About
Before you touch multiples or models, you need a clean earnings baseline. Buyers often look at annual earnings and the number of years earnings are expected to continue when evaluating a business. In most small business deals, buyers anchor on one of two numbers, and choosing the wrong one can quietly distort your range.
When establishing your earnings baseline, remember that business valuation calculators typically require inputs such as annual earnings, anticipated rate of earnings growth, and level of risk. These factors help determine how long the business is expected to generate income (referred to as years earnings) which is crucial for accurate valuation and financial planning.
Seller’s Discretionary Earnings (SDE)
SDE is the most common lens for owner-operated businesses. It starts with net income, then adjusts for owner compensation and “noise” so a buyer can see the true cash flow available to a single working owner.
Typical SDE cleanup includes add-backs like one-time legal fees, a non-recurring repair, or discretionary expenses that will not carry over post-close. Excess compensation, such as owner salaries above market rates, is also adjusted for in SDE calculations to ensure earnings reflect what a typical buyer would expect. The point is not to inflate earnings, it’s to normalize them so your story matches your bank statements and tax returns during diligence.
When owners ask what SDE multiple they should expect, the honest answer is “it depends,” but the dependency is usually on proof and risk, not on clever math. If SDE is clean and documented, buyers spend less time second-guessing you, and that alone can protect value.
EBITDA
EBITDA tends to matter more as operations scale, staffing deepens, and you start looking “manager-run” rather than “owner-run.” EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and is used to measure core operational profitability. It is calculated by adding back interest, taxes, depreciation, and amortization to net income, which provides a clearer picture of the business's cash flow. It’s also a more common language for larger transactions, especially once working capital expectations become more formal.
Here’s a useful rule of thumb: If your business can credibly operate without you (and your books show that clearly), an EBITDA multiple conversation becomes easier to support. Cleaner reporting also helps you move faster, because standardized presentation reduces back-and-forth in diligence and keeps offers firm.
Core Business Valuation Methods (and When to Use Each)
Once earnings are normalized, you can apply buyer-recognized valuation methods. A business valuation typically includes an analysis of the company's financial statements, and business owners often turn to professional business evaluators for an objective estimate of their business's value. In practice, most serious pricing uses more than one valuation method, then reconciles the results into a range you can defend. A business valuation can be determined by a range of valuation methods (such as the Times Revenue Method, Price to Earnings Ratio, and Asset Valuation) and often combines multiple techniques for a comprehensive view. Business valuation is also often determined as part of a merger or acquisition.
Market Approach: Multiples
The market approach uses comparable deals and prevailing industry multiples to estimate value, usually as a multiple of SDE or EBITDA. This method often involves comparing your business to comparable companies that have recently been sold. Market-based valuation, comparable analysis, and the precedent transaction method all estimate a business's worth by benchmarking against similar businesses in the industry.
A practical example: A neighborhood café might trade on a 2.8–3.3x SDE band, while a B2B services firm could trade on a 4.0–5.0x EBITDA band, assuming similar risk profiles and clean documentation. The important part is not the math, it’s the “why this multiple, for this business, right now.”
This is also where owners often confuse business price vs. business value. Value is what the business can justify on fundamentals; price is what you actually get after terms, timing, and negotiation.
Income Approach: Capitalization and DCF
Income-based valuation values a business based on its potential to generate future income or cash flow.
Two common tools:
Capitalization rate method: a simplified approach for stable businesses, using a representative earnings level divided by a cap rate.
Discounted cash flow: Best when you have strong visibility into growth, contracts, or recurring demand, and can model scenarios without hand-waving. The discounted cash flow (DCF) method calculates the present value of future cash flows to determine a business's value.
These methods can be powerful, but they’re sensitive. If your projections are optimistic or your discount rate is not credible, buyers will discount the whole model. When modeling scenarios, the anticipated rate of earnings growth is a key input in these calculations. The takeaway here is simple: use income methods to explain upside, not to replace market reality.
Asset Approach: Net Asset Value
Asset valuation is a key valuation method that focuses on both tangible and intangible assets. Asset-based valuation determines a business's value based on its net assets by subtracting liabilities from total assets. To calculate this, you assess the value of tangible assets (such as machinery, land, and inventory) which are fundamental components in asset valuation.
Replacement value is another approach used to calculate the value of a business's assets, considering what it would cost to replace them at current market prices. This method becomes especially important in asset-heavy, low-margin, or distressed situations, where net asset value becomes the floor.
For many Main Street businesses, assets support the story, but earnings still drive the premium. The most useful mindset: Assets help you avoid undervaluing the downside, earnings earn you the upside.
Factors That Move Your Multiple
Not all “3x” deals are equal. The same earnings can trade up or down based on risk signals buyers have learned to respect.
Here’s what moves the needle most often:
Recurring revenue and contract quality (buyers pay more for predictability).
Customer concentration (a top client accounting for too much revenue can compress your multiple).
Owner dependence, team depth, and SOPs that make the business transferable.
Clean, reconcilable financials and documented add-backs that hold up in diligence.
Working capital needs, because buyers adjust the effective price if the business needs cash to operate on a daily basis.
Industry risk profile: lower risk industries, typically restaurants and retail, often receive higher multiples, while high tech businesses like software developers are considered higher risk and may receive lower multiples.
Note: Buyers pay for “boring and provable,” and they discount “exciting but fuzzy.”
Price It Right With Evidence: Documentation Checklist
A defensible range needs defensible proof. This is the part most owners underestimate, and it’s why deals retrade.
To make your valuation hold up, you want a tidy package that reduces buyer friction. Comprehensive financial statements (such as income statements, balance sheets, and cash flow statements) are essential for supporting your valuation and giving buyers confidence
Three years of P&L, balance sheet, tax returns, plus TTM financials and bank statements
An add-back schedule with receipts and clear explanations
AR/AP aging, retention, or cohort views, and top-10 customer concentration
Key contracts, licenses, leases, and an equipment list with condition notes
Process docs that reduce owner reliance and make the transition feel real
When these are standardized, diligence compresses, negotiation gets calmer, and your range stops wobbling. That’s the real value of standardized financials for faster diligence.
Industry Snapshot: Typical Multiple Ranges
Owners always ask, “What multiple should I expect?” A snapshot helps set expectations, as long as you treat it as directional rather than a promise. Here’s a practical frame based on common market patterns and buyer behavior. In business valuation, the revenue method (specifically the times revenue method) is often used for early-stage companies or those lacking a profit history. This approach calculates a business's value by multiplying its annual revenue by an industry specific multiplier, which varies depending on the industry’s growth prospects and characteristics. In contrast, earnings multiplier valuation applies a multiple to a business's earnings, such as EBITDA or net income, to determine its value.
Restaurants and cafés
Earnings basis: SDE
Typical range: 2.0–3.0×
Key drivers: location quality, labor stability, lease terms, seasonality, owner dependence
Retail (brick-and-click)
Earnings basis: SDE
Typical range: 2.0–3.0×
Key drivers: foot traffic, inventory turns, margin stability, SKU mix, supplier concentration
E-commerce and FBA
Earnings basis: SDE
Typical range: 2.5–3.5×
Key drivers: channel concentration, reviews moat, ad efficiency, supplier redundancy
Home services and trades
Earnings basis: SDE
Typical range: 2.5–3.5×
Key drivers: lead sources, repeat rates, crew retention, licensing, seasonality
Professional services / B2B
Earnings basis: EBITDA
Typical range: 3.5–5.5×
Key drivers: contracted revenue, utilization, client concentration, partner reliance, backlog
Managed IT and MSP
Earnings basis: EBITDA
Typical range: 5.0–7.0×
Key drivers: recurring contracts, churn, ARPU, documentation maturity, certifications
Healthcare practices
Earnings basis: EBITDA
Typical range: 4.5–6.5×
Key drivers: payer mix, reimbursement rates, provider retention, compliance
Manufacturing / light industrial
Earnings basis: EBITDA
Typical range: 4.0–6.0×
Key drivers: capacity utilization, certifications, customer concentration, capex needs
Distribution and logistics
Earnings basis: EBITDA
Typical range: 4.0–5.5×
Key drivers: route density, contract quality, fuel exposure, working capital intensity
Software (profitable operations)
Earnings basis: EBITDA
Typical range: 6.0–8.0×
Key drivers: net revenue retention, contract terms, growth durability, margin profile
If you want to benchmark where you land within your niche, a quick business valuation calculator can help you sanity-check the range, then you can pressure-test it with real comps and buyer feedback.
Deal Structure Changes Value More Than You Think
Price is one lever, terms are the others. Structure can raise or lower what you actually take home, even when the headline number looks the same. For larger businesses, the sale process is typically handled by investment banks or M&A firms due to the complexity and scale involved. Business valuation is crucial when contemplating selling a business, raising capital, or seeking investment, as it helps assess the potential return and risk for both owners and investors.
Recent market data illustrates the pattern: Sellers often receive most of the value at close, but not all of it. IBBA Market Pulse highlights show average cash at close in the roughly 78%–92% band (by deal size), with some portion commonly allocated to seller financing and, less often, earnouts.
In many Main Street deals, seller financing explained comes down to this: A seller note can widen the buyer pool and sometimes support a higher headline price, but you are trading some certainty today for potential value over time.
When seller notes are used, interest rates are negotiated, commonly landing in the mid-single digits, depending on risk and structure.
The takeaway: If you care about “value,” you have to model proceeds by term, not just by multiple.
Taxes and Entity Type Influence Net Proceeds
When owners say “value my business,” they often mean “what do I actually keep?” Taxes and structure can materially change that answer. It's important to calculate the net proceeds after taxes to understand the true value of your business's sale, as taxes can significantly impact your business's final outcome.
At a high level, many small businesses sell as asset sales, and purchase price allocation matters. The IRS treats a business sale as the sale of individual assets (not one single blob), which is why allocation, documentation, and good advice matter.
If you want a deeper primer, start with taxes on selling a business, then use that knowledge to negotiate smarter instead of discovering surprises after the LOI.
And if online sale paths are on your mind, reading How to Sell My Business Online can help you connect process choices to real after-tax outcomes.
Timing Your Valuation and Refresh Cadence
Valuation is not one-and-done. Treat it like a decision tool you refresh as the business changes, especially if you are preparing to sell your business within the next year. Regularly refreshing your valuation ensures you maintain a comprehensive view of your business's value as conditions change.
A practical cadence looks like this:
Get an initial valuation when you start prepping, so you know which levers matter most.
Refresh before listing (or before signing an LOI), so you do not negotiate based on stale assumptions.
Do a quick refresh after major changes: A new contract, meaningful churn, pricing shifts, seasonality, or staffing changes.
This is also where owners benefit from tracking “buyer-ready” metrics monthly or quarterly rather than annually. The end result is less whiplash when you go to market, and fewer surprises when buyers diligence your numbers.
Common Misconceptions That Kill Deals
Most broken deals are not caused by one big issue; they’re caused by small misunderstandings that compound until trust disappears.
Three to clear upfront:
“Revenue times a fixed multiple equals value.”
Buyers price normalized earnings and risk, not top-line vanity.
“All add-backs are accepted.”
Buyers accept what you can prove and what will not be repeated, especially under due diligence.
“If I list high, buyers will meet me in the middle.”
Stale listings can signal denial or hidden issues, and buyers use that to negotiate harder.
If this section resonates, it’s worth reading more about business value as a whole to see why even experienced owners misprice, and how to tighten the story before the market tightens it for you.
How Baton Market Supports a Defensible Valuation
A solid process earns stronger offers. The goal is not to “win the spreadsheet”; it’s to earn buyer confidence fast enough that your offers remain firm through diligence.
In practice, that means combining broad market data with real buyer feedback. Across Baton-led processes, initial valuation ranges tend to land close to final outcomes, often within about 10%, because the range is calibrated to what buyers will actually pay and how deals are actually structured.
If you’re comparing options, it can also help to understand how business appraisal vs. valuation differ, and when a formal appraisal is necessary versus when a buyer-aligned valuation is the right tool.
And if you are weighing traditional representation, it’s worth getting clarity on business broker fees, because the fee structure shapes incentives, timelines, and the kind of pricing guidance you receive.
When you want a guided path with clear roles, Baton’s business valuation team model is designed to turn valuation into action, not just a report.
Ready to See Your Number, Backed By Evidence
A valuation is only useful if it survives buyer scrutiny. Knowing your business's value enables you to determine a fair selling price and negotiate effectively with potential buyers.
Business valuation also serves as a guideline for your business's long-term financial health and potential survival. Additionally, a business valuation can illuminate your company's strengths and weaknesses, aiding in strategic decision-making. Business valuations are often necessary for your business's taxation purposes, partner ownership establishment, and divorce proceedings.
When you combine clean earnings, the right mix of methods, and proof that holds up under scrutiny, “value my business” stops being a guess and becomes a plan you can act on.
If you want to start now, get your free business valuation, then explore what it takes to sell your business with a process built to create confidence early and protect leverage through closing.