What Is My Business Worth?

Owners usually guess high. Once in a while they guess low. For a business this size the price almost always comes down to the same math: cash flow times a multiple. Cash flow is what you actually take out of the business in a year. The multiple is how many years of that amount a buyer agrees to pay you up front.

We look at businesses doing $1M to $10M in revenue, with at least $300K in cash flow that shows up on the tax returns. If you sit outside that range the math still works. The buyers change and the multiples change with them. One more thing before the numbers: a range is not a price. Nobody can price your business off an article. That takes a look at your books, and anything you send us stays between us.

Start with cash flow

Buyers call it seller cash flow. Some call it SDE. Start with the net profit on the tax return, then add back what the business pays for you personally.

Your salary goes back in. So does the truck payment. So does the health insurance and the fuel card. A spouse on the payroll who does not work in the business counts too. If the business carries it for you and a new owner would not have to, it goes back in. Add it all up and you get a truer picture of what the business pays its owner in a year.

A buyer is not buying your revenue, and he is not buying your equipment list. He is buying that yearly amount, and the chance it keeps coming after you leave. That is why your salary counts as part of it. Once you sell, that money stays with the business instead of going home with you.

We work off tax returns because you have already signed them. Plenty of owners show us a spreadsheet with a bigger number on it. If the bigger number is not on the return, a buyer will not pay for it and a bank will not lend against it. That is the whole argument, and it ends the same way every time.

Then the multiple

The multiple is simpler than it sounds. At a 3x multiple, a buyer is paying you three years of cash flow at closing instead of collecting it year by year.

Most small service and staffing companies change hands somewhere between 2.5x and 4x cash flow. Consulting firms tend to sit lower, around 2x to 3.5x. The same business can land at either end of its range. Where it lands depends on how safe the income looks to the buyer.

That is real money riding on a judgment call about risk. Buyers make that call by looking at how steady the income is. They also look at how much of it depends on you personally.

Take our free five-minute assessment to get an estimate of what your business could sell for.

What's My Business Worth?

What gets you a better multiple

Buyers pay up when they believe the money will still be there in year two and year three. That belief comes from a few things we see again and again.

• Contract work that bills every month and does not depend on you showing up
• No single customer big enough to hurt the business by leaving
• A crew or a manager who can run a normal week without calling you
• Books that tie out to the tax returns without a story to explain the gaps
• Sales that have grown over the last few years, or at least held steady

You do not need all five. Two or three of them done well will do more for your price than extra revenue that all runs through you.

What pulls it down

The problems are just as familiar. Each one tells a buyer the income may not survive the sale.

• One customer who could take most of the revenue by leaving
• Every estimate and every key account still going through the owner
• Books with missing months and personal spending mixed into the accounts
• Work that requires the owner’s license, with nobody else licensed to step in

None of this makes a business unsellable. It does mean a buyer will protect himself on price. If the income walks out the door with you, he bought a job instead of a business.

Why two buyers give two numbers

Get two offers and they will rarely match. That does not mean one buyer is wrong. They are usually offering different deals that happen to carry different prices.

One might offer less and pay nearly all of it at closing. Another offers more but wants you to carry a note for part of it. The higher number can leave you with less in the end. If the business stumbles after the sale the later payments can shrink or stop.

How long you stay on matters too. If a buyer needs you for six months to hand over customers, he will build that need into what he pays. He will also build it into how he pays. A business where the staff already hold the customer relationships needs less of that. Buyers price the difference.

Taxes change the ending as well. How the price gets split decides what you keep after tax. The split between the business assets and your goodwill matters. So does any pay tied to consulting work or a noncompete. Two deals at the same price can put very different amounts in your account. That is worth sorting out before you settle on a number, not after.

What you keep depends on how you sell

The price is only part of what you end up with. How you sell decides what comes out of it before the money reaches you, and how long you wait to get it. These are the published numbers for the listed route, so you can weigh that route against a direct sale with no broker fee in it. See how selling your business directly to RockHaven works for the other side of that comparison.

Frequently asked questions