How to Value a Business to Sell: A 2026 Owner's Guide

The three valuation methods buyers use

1. EBITDA multiple. The most common method for profitable small businesses. Value = EBITDA × industry multiple (typically 3–7×).
2. Revenue multiple. Used for high-growth or pre-profit businesses (SaaS, content sites). Value = Revenue × multiple (typically 0.5–8× depending on industry).
3. Discounted cash flow (DCF). Project 5–10 years of cash flows, discount back to present value, add a terminal value. Rigorous but assumption-heavy.

Typical multiples by industry

What makes a business worth more

• Recurring revenue. Subscription / contracted income commands 50–100% premium over project-based.
• Customer concentration < 20% from any single client. One client = 40% of revenue is a huge discount factor.
• Documented systems and processes. The business runs without you. Buyers pay for this.
• Owner-replaceable management. Multiplier on its own — a business where the owner is the brand sells for 30–50% less.
• Clean financials. 3+ years of accountant-prepared statements. Bookkeeping mess kills deals.
• Growth trajectory. Revenue growing > 15%/year commands premium multiples.
• Defensibility. Brand, contracts, IP, geographic exclusivity — moats raise multiples.

What knocks value down

• Owner is the business (sales relationships, technical work)
• Customer concentration above 30%
• Revenue declining or flat for 2+ years
• Heavy capex requirements ahead (worn equipment, lease ending)
• Pending legal or tax issues
• Bookkeeping not on accrual basis or no clear financials
• Industry headwinds (declining sector)

A worked example

A 7-year-old digital marketing agency with $1.2M revenue, $180k EBITDA, 6 staff, three clients = 50% of revenue, founder handles all sales.

• EBITDA multiple (services baseline 4×): $720k
• Customer concentration discount: −15% → $612k
• Owner-dependence discount: −20% → $490k
• Revenue multiple sanity check (1× rev): $1.2M (high — buyers pay for income, not top line)
• Realistic asking range: $500k–$650k.

Steps to raise your value before selling

1. 12–24 months before sale: reduce owner involvement. Hire a manager, document SOPs, transfer customer relationships to staff.
2. 12 months before: clean up financials. Move to accrual accounting if not already; get statements reviewed by a CPA.
3. 6–12 months before: diversify customers. If one client is 40% of revenue, target landing 2–3 new clients to spread risk.
4. 6 months before: get a formal valuation from a business broker. Use it as the floor for your asking price.
5. 3 months before: prepare the "CIM" (Confidential Information Memorandum) — the deck buyers will review.

Add-backs: legitimate vs aggressive

Sellers often inflate EBITDA with "add-backs" — expenses the new owner won't have. Buyers scrutinise these heavily.

• Legitimate: owner's above-market salary (excess only), one-off legal fees, owner's personal car run through business.
• Aggressive: "potential" future cost cuts, marketing the buyer "won't need", family member salaries the buyer might keep.

Buyers typically accept 50–70% of seller-claimed add-backs.

Calculate your range

Use the Business Valuation Calculator — it runs revenue-multiple, EBITDA-multiple, and DCF side-by-side to produce a defensible range, not a single number. Buyers expect to negotiate within a range.

Bottom line

• Most small businesses sell at 3–5× EBITDA.
• Recurring revenue, low customer concentration, and owner independence are the three biggest value drivers.
• Start preparing 18–24 months before selling — the work to raise multiples is operational, not financial.
• Always quote a range, not a single number.