The number every owner wants — and why there is no single answer
“What is my business worth?” is the first question every owner asks, and the honest answer is: it depends on who is buying, why, and how well the story is told. Valuation is not a formula run once; it is a range defended in a market. But the mechanics are knowable, and owners who understand them negotiate from strength.
The core method: a multiple of EBITDA
Most privately held, middle-market companies are valued as a multiple of adjusted EBITDA — earnings before interest, taxes, depreciation, and amortization, normalized for owner-specific and one-time items. A company producing $3M of adjusted EBITDA at a 5.5x multiple implies roughly $16.5M of enterprise value. Two levers move that outcome: the EBITDA itself, and the multiple. (For the full treatment of the earnings side, see EBITDA, Explained.)
What actually drives the multiple
Size. Larger EBITDA commands higher multiples — buyers pay for durability, and scale reads as durability.
Growth and margins. A business growing 15% a year with expanding margins earns a different multiple than one treading water, even at identical EBITDA.
Customer concentration. If one customer is 40% of revenue, every buyer will price that risk. Below roughly 10–15% for the largest customer, concentration stops hurting.
Management depth. A business that runs without its owner is worth more than one that cannot. Buyers are acquiring future earnings; if those earnings walk out the door with you, the price reflects it.
Recurring revenue and transferability. Contracts, repeat customers, and documented processes make earnings believable — and believable earnings get paid for.
Enterprise value is not what you take home
Headline value is enterprise value — the value of the operating business. From there, deal structure allocates it: debt is repaid, net working capital is trued up against a target, and the mix of cash at close, rollover equity, earnouts, and seller notes determines what arrives in your account and when. A $20M offer that is 70% cash is very different from a $22M offer that is half earnout.
The other approaches — and when they matter
Asset-based approaches set a floor for asset-heavy or underperforming businesses. Discounted cash flow appears in specialized situations and buyer models. Revenue multiples apply in a handful of industries where the market prices top line. For most profitable, privately held companies, however, the market speaks in EBITDA multiples — and comparable-transaction evidence is the strongest testimony.
How sellers defend a number
Buyers do not pay for claims; they pay for evidence. A defensible valuation package includes recast financials with documented add-backs, three or more years of consistent statements, a credible growth story with the numbers underneath it, and — increasingly — a sell-side quality of earnings report that pre-answers the questions a buyer’s accountants will ask.
Common questions from owners
What multiple of EBITDA do businesses sell for?
Lower-middle-market companies commonly trade between 4x and 8x adjusted EBITDA, with size, growth, customer diversification, and management depth pushing the number up or down. Premium, scaled, or highly strategic businesses can exceed that range; smaller or owner-dependent businesses fall below it.
What is the difference between enterprise value and what I receive at closing?
Enterprise value is the value of the operating business. Proceeds to the owner are enterprise value minus debt, adjusted for the net working capital true-up, and shaped by structure — cash at close, rollover equity, earnouts, and seller financing all change what you take home and when.
Is a valuation from my accountant the same as market value?
No. Formal appraisals serve tax, estate, and legal purposes and follow prescribed methods. Market value is what a competitive process among real buyers produces — it is frequently different, sometimes materially.
How can I increase my company's value before selling?
Reduce customer concentration, build a management team that runs the business without you, convert handshake relationships into contracts, clean up the financials, and document add-backs as they occur. Two to three years of runway is enough to move both EBITDA and the multiple.
Does revenue matter to valuation?
Revenue matters as evidence of scale and growth, but in most industries profitable middle-market companies are priced on earnings, not revenue. A $20M-revenue business with $4M of EBITDA is typically worth more than a $40M-revenue business with $2M.