There is no single formula every buyer uses to determine the value of a business. A proper business valuation should consider financial performance, industry trends, recurring revenue, customer concentration, growth potential, owner involvement, and other factors that can impact what a buyer is willing to pay.
For many small and lower-middle-market businesses, a common starting point is Seller’s Discretionary Earnings (SDE) multiplied by an appropriate industry valuation multiple.
SDE = Net Income + Owner Compensation + Eligible Discretionary and One-Time Add-Backs
Depending on the industry, size, risk profile, and quality of earnings, businesses may trade at different SDE multiples. Using an industry multiple can provide a preliminary estimate, but it should not replace a detailed valuation analysis.
At GillAgency, we help business owners understand what their company may be worth before going to market. We offer a complimentary Broker’s Opinion of Value (BOV) that considers your financial performance, market conditions, industry multiples, and factors that may increase or decrease your business valuation.
To get a free detailed report and Broker’s Opinion Of Value (BOV) of your business, please fill out the form below and we will provide you with the Broker’s Opinion of Value free of charge.
