Valuation: What Is My Business Worth? How to Value Your Company Before a Sale

Jun 24

3 min read

Introduction: Why Valuation Matters

If you're asking “What is my business worth?”—you're already ahead of the game. Most business owners wait until it’s too late to start thinking about valuation, often leaving money on the table or scaring off buyers altogether.

Whether you're ready to sell this year or preparing for a potential exit down the road, understanding what drives business value is critical. And spoiler alert: It’s not just about your revenue.

In this guide, we’ll walk you through the most common valuation methods, explain what buyers actually look for, and give you tools to prepare—starting with our free Exit Planning Checklist to help you maximize your business's potential sale price.

Step 1: Understand What Buyers Are Really Buying

Buyers don’t just acquire a business. They acquire:

Future earnings
Systems and processes
Customer relationships
Brand reputation
Operational independence (i.e., how little they need you)

Valuation, then, isn’t just about how much you made—it’s about what someone else believes they can make.

Step 2: Know the Common Valuation Methods

1. Seller’s Discretionary Earnings (SDE)

Most small business valuations start with SDE—your net income plus add-backs like:

Owner’s salary
One-time expenses
Personal expenses run through the business
Non-cash charges (like depreciation)

Example: Let’s say your net profit is $100,000.Add back:

Your salary: $75,000
One-time website overhaul: $10,000
Depreciation: $5,000

Your SDE = $190,000

Now multiply that by an industry-specific multiple (typically 2x–3x for small businesses), and you’ve got your ballpark value.

🧮 2. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA is used more often in larger businesses or companies with multiple owners or investors. It strips away expenses that vary based on how a business is financed, giving a clearer view of operational profitability.

It’s also often used in stock sales, private equity transactions, or when comparing across industries.

📊 3. Comparable Sales (aka Market Approach)

What are similar businesses in your area or industry selling for?

This is where working with an M&A advisor like Trending Up Business Services makes a difference. We see deals every week and have access to private sale comps you won’t find online.

🏠 4. Asset-Based Valuation

Used in asset-heavy businesses (like equipment rental, construction, or manufacturing), this looks at the resale value of your assets minus liabilities. This method is less common when a business has strong cash flow or brand equity.

Step 3: Factors That Increase (or Kill) Your Business Value

✅ Increases Value:

Recurring or subscription-based revenue
Strong brand identity
Clean financials & tax returns
Standard Operating Procedures (SOPs)
Low owner dependency
Growth potential

❌ Kills Value:

Commingled personal and business expenses
Inconsistent earnings
Customer concentration (too much revenue from one or two clients)
Lack of documentation
Pending lawsuits or regulatory issues

Need help sorting this out? Our Exit Planning Checklist walks you through these key areas—free, no strings attached.

Final Thought: Value Is More Than a Number

Valuation isn’t a math problem—it’s a story. And the better you tell that story (with data, documentation, and guidance), the better chance you have of getting the price you deserve.

Let us help you craft that story. Because your business is worth more than you think—if it’s positioned correctly.