What Is My Business Worth? A Straightforward Guide to Business Valuation

For many owners, the business isn’t just an asset; it’s the story of a lifetime. You’ve built it over decades, weathered recessions, made payroll through hard months, and seen it grow from an idea into something tangible. So when the time comes to ask “What’s my business worth?”, it’s not just about numbers. It’s about legacy, family, and the future.
A business valuation tells you more than what a buyer might pay. It reveals how the market views what you’ve built: its strength, resilience, and transferability. Whether you’re planning a sale, thinking about retirement, or simply curious, understanding valuation is one of the most practical and empowering steps an owner can take.

Start with the Purpose: The “Why” Determines the “How”

A valuation isn’t one-size-fits-all. The method and level of detail depend on your purpose:

• Selling the business: Buyers rely on income-based and market-based methods to gauge what they can afford to pay.
• Bringing on a partner or securing financing: Banks and investors need standardized, verifiable valuations.
• Succession or estate planning: Formal appraisals may be required for tax purposes.
  Your “why” shapes your “how.” A valuation for sale may look very different from one for internal transition. Valuation shouldn’t be a once-in-a-decade exercise. Regularly updating your company’s value is like checking the dashboard on a long drive; it keeps you aware of performance before problems arise.
  Client Snapshot:
  A Michigan manufacturer we worked with hadn’t updated his valuation in nearly ten years. When he finally did, he discovered that customer concentration had quietly eroded value: a single buyer accounted for nearly half his sales. That insight didn’t just reveal a number, it changed his strategy. Within 18 months, diversification lifted both stability and valuation.

What Buyers Actually Pay For

While there are many ways to calculate value, every buyer starts with two questions:

1. How much cash flow will this business produce?
2. How confident am I that it will continue?
   Think of earnings as the engine and risk as gravity. Strong, consistent earnings lift value upward; risk pulls it down. When earnings are stable, documented, and transferable, buyers are willing to pay more per dollar of profit. When the business depends heavily on you or a single customer, gravity wins, and value falls.

The Three Core Valuation Methods

1. Market Multiples
   This is the “real-world benchmark” approach: comparing your company to others that have sold. It’s simple but powerful.
   Smaller, owner-operated businesses are typically valued using Seller’s Discretionary Earnings (SDE), while larger, professionally managed firms use EBITDA. If your company earns $600,000 in EBITDA and similar businesses sell for 5x, the estimated market value might be around $3 million.
   2. Discounted Cash Flow (DCF)
   DCF projects future cash flows and discounts them back to today’s value, accounting for risk and the time value of money. It’s a favorite for investors and buyers analyzing growth companies but relies on accurate forecasting.
   3. Asset-Based Valuation
   For asset-heavy or underperforming businesses, this method looks at total asset value minus liabilities. It’s often the floor value: what the business would be worth if sold piece by piece.
   Each method has its place. Together, they form a picture that’s more complete than any single number.

SDE vs. EBITDA: Know Your Earnings Type

For smaller firms, SDE (Seller’s Discretionary Earnings) captures the total financial benefit to the owner: salary, perks, and profit. For mid-sized businesses, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) removes owner-specific adjustments and provides a cleaner comparison across companies.
As Business.com points out, mixing these up, or being sloppy with add-backs, can distort valuation significantly.
Example:
A service business reported $400,000 in SDE, but the owner had included several personal expenses that weren’t properly documented. After review, true SDE was closer to $320,000, enough to lower the valuation by nearly half a million dollars. Accuracy matters.

The Five-Step “Owner’s Valuation”

Here’s a simplified framework any owner can use as a starting point:

1. Choose your earnings base: SDE for small, EBITDA for larger firms.
2. Normalize earnings: remove one-time or personal expenses.
3. Apply a realistic multiple: based on size, growth, and risk (from industry data or advisors).
4. Cross-check with cash flow: make sure projections are reasonable.
5. Compare against asset value: ensure the number passes a “sanity test.”
   These are the same principles cited by Business.com and Nav for small business owners conducting a first-round self-assessment.

Add-Backs and Adjustments: Document Everything

Buyers expect adjustments for one-time or discretionary expenses, but they also expect proof.

• Legitimate add-backs: above-market owner salary, family payroll, or one-time legal fees.
• Risky add-backs: projected savings, vague “marketing expenses,” or perks without receipts.
  A valuation supported by documentation builds credibility and trust. A valuation full of assumptions invites skepticism.

The Risk Factors That Shape Your Multiple

Valuation is as much about perceived risk as it is about raw numbers. Common factors include:

• Customer concentration: Overreliance on one or two accounts reduces value.
• Owner dependence: If you are the business, buyers will lower the price.
• Cyclicality: Stable industries (like food processing) tend to fetch higher multiples than cyclical ones (like automotive supply).
• Financial clarity: Clean records, forecasts, and contracts reduce uncertainty and improve valuation.
  Reducing these risks in advance is one of the most effective ways to lift your multiple and the outcome of a sale.

Which Method Fits Which Business

Common Valuation Mistakes

1. Using inflated multiples pulled from national averages without accounting for size or risk.
2. Confusing revenue with profit: buyers pay for earnings, not sales.
3. Ignoring working capital needs: cash tied in inventory and receivables affects real proceeds.
4. Treating valuation as one-time math. It’s an ongoing measure of business health, not a finish line.

When to Bring in Professionals

As your business grows, informal estimates lose precision. Professional valuations validate your numbers and help avoid surprises in due diligence.
At Breneman Advisors, we provide market-based valuation opinions rooted in real transaction data and private market analysis. For owners exploring a sale or recapitalization, that perspective is invaluable. It bridges the gap between accounting theory and buyer reality.

A Quick Example

Let’s say your company earns $500,000 in SDE.

• You’ve normalized expenses.
• Similar firms sell for 3–4x SDE.
• That suggests a range between $1.5 and $2 million.
• Strong systems, diversified customers, and growth trends push you toward the higher end.
  This “back-of-the-envelope” approach, consistent with Business.com and Nav’s guidance, gives you a reliable first look before engaging professionals.

The Takeaway

Valuation isn’t just a financial exercise; it’s a mirror. It reflects your company’s strengths, its risks, and how ready it is to stand on its own without you.
For many owners, discovering their business’s value can feel like an emotional crossroads. It’s the moment where decades of work get distilled into a single number, and that can feel both gratifying and humbling. But remember: valuation is not judgment; it’s measurement. It’s a tool to help you steer, not a verdict on what you’ve built.
Like a dashboard on a long drive, valuation doesn’t tell you where you’ve been. It tells you how well the engine is running and how far you can go.

How We Help

At Breneman Advisors, we help business owners understand, measure, and grow business value: not just for an eventual sale, but for every stage of ownership.
Whether you’re planning retirement, considering a sale, or simply want to benchmark where you stand, our team provides confidential, data-driven valuation assessments tailored to privately held businesses.

Schedule a confidential valuation discussion with Breneman Advisors to learn what your business is worth today and how to increase its value before you sell.