Business Valuation Guide
Know what your business is worth — and how a buyer will see it.
Why Valuation Matters
Whether you're listing a business for sale or evaluating an acquisition target, valuation is the foundation of every deal. List too high and serious buyers walk away. List too low and you leave money on the table. A credible valuation builds trust and accelerates closing.
Common Valuation Methods
1. SDE Multiple (Seller's Discretionary Earnings)
The most common method for small businesses (under $5M revenue). SDE = net profit + owner's salary + add-backs (personal expenses run through the business). A typical SDE multiple ranges from 2x to 4x depending on industry, growth, and risk.
2. EBITDA Multiple
Preferred for mid-market deals ($1M+ revenue). EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. Multiples vary by industry — SaaS companies often command 5x–10x, while service businesses may see 3x–5x.
3. Asset-Based Valuation
Best for asset-heavy businesses (real estate, manufacturing, inventory-rich retail). Calculates value based on the fair market value of tangible and intangible assets minus liabilities. Often used as a floor — rarely a ceiling.
4. Market Comparables
Looks at recent sales of similar businesses in the same industry and size range. Useful for benchmarking. Sources include BizBuySell sold listings, industry broker reports, and the Pepperdine Private Capital Markets Report.
Factors That Increase Value
- ✓Recurring revenue or long-term contracts
- ✓Strong brand and online reputation (reviews, SEO)
- ✓Documented systems and SOPs — not dependent on the owner
- ✓Diversified customer base (no single customer >20% of revenue)
- ✓Clean financials — 3+ years of tax returns and P&Ls
- ✓Intellectual property, trademarks, or proprietary technology
- ✓Growth trend — revenue increasing year-over-year
Factors That Reduce Value
- ✗Revenue decline over the past 1–2 years
- ✗Owner-dependent operations with no management team
- ✗Pending litigation or unresolved legal issues
- ✗High customer concentration risk
- ✗Messy or inconsistent financials
- ✗Lease about to expire with no renewal options
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