Texas-wide · Valuation
How do Texas M&A advisors determine a realistic asking price?
The step-by-step method advisors use to turn your financials into a defensible price range, and why buyers often set the final number.
By Michael D. Rubin, CEO & Founder · September 2026 · 940 words
A Texas M&A advisor sets a realistic asking price by recasting your financials to find adjusted EBITDA, applying the multiple buyers currently pay for companies like yours, and then testing that number against what a buyer can actually finance. The result is a range, not a single figure, and in a well-run sale the final price is set by competing offers rather than by the asking price.
Here is each step, what can go wrong at it, and how to check your advisor's work.
Step 1: Recast the financials
Your tax returns are designed to keep taxable income low, which is the opposite of what a buyer pays for. A recast restates three years of results as if a new owner ran the company. The advisor adds back expenses that will not continue after the sale: owner pay above a market salary, personal vehicles and travel, relatives on the payroll who do no work, a one-time lawsuit, a relocation. Each add-back needs a document behind it, because buyers test every one in due diligence.
The advisor also subtracts. If you pay yourself less than a manager would cost, or rent your building from yourself below market, the recast corrects that too. An honest recast is what makes the price defensible.
Step 2: Arrive at adjusted EBITDA
EBITDA is earnings before interest, taxes, depreciation and amortization, a rough measure of the cash the operations produce. Adjusted EBITDA is that figure after the recast. Advisors look at the trend across three years and the trailing twelve months, and they weigh the most recent year most heavily when it is representative. A single unusually strong year is not a basis for price unless the reason for it will continue.
Buyers will recompute this number themselves. Many private equity buyers and lenders commission a quality-of-earnings review, an accounting firm's check that reported earnings are real and repeatable. If the adjusted EBITDA your advisor used does not survive that review, the price falls with it, usually late in the deal when you have the fewest alternatives. That is why a conservative, documented figure often ends in a higher final price than an aggressive one.
Step 3: Decide where you sit in the multiple range
For companies with $3 million to $100 million in annual revenue, buyers most often pay three to seven times adjusted EBITDA. That is a wide range, and where your company lands depends on risk and growth. Industry matters too: some sectors draw many active buyers, which pushes multiples up, while others draw few. A good advisor can tell you who is buying companies like yours today and how they have been pricing them, without disclosing anyone's confidential deal. The main drivers:
| Driver | Moves the multiple up | Moves it down |
|---|---|---|
| Size of earnings | Larger, steadier EBITDA | Small or erratic EBITDA |
| Customer base | Many customers, none dominant | One or two customers carry the company |
| Owner dependence | A management team runs daily operations | Customers and staff rely on the owner personally |
| Revenue quality | Recurring or contracted revenue | One-off projects that must be won again |
| Trend | Growing revenue and margins | Flat or declining results |
| Records | Clean books that reconcile to tax returns | Gaps, cash sales, unexplained adjustments |
Step 4: Test the number against financing
A price no buyer can finance is not realistic. Many buyers of lower middle market companies borrow part of the price through SBA or conventional bank loans, and lenders check whether the company's cash flow covers the loan payments with room to spare. An advisor who knows how these deals are financed will confirm that the proposed price leaves enough cash flow to service the debt, and will consider whether a seller note, a portion of the price you receive in installments, could bridge a gap.
The same test applies to the buyer pool. A price that only a strategic buyer, such as a larger competitor, could justify is realistic only if such buyers exist for your company. If they do not, the range should reflect what financial buyers can pay.
Step 5: Decide whether to publish a price at all
In a competitive process the advisor often does not publish an asking price. Buyers receive the marketing package and financial recast, then submit letters of intent (LOIs), which are written offers setting out price and main terms. When several LOIs arrive together, competition sets the price, and the advisor's range becomes the floor you measure offers against rather than a ceiling. Putting a number in front of buyers too early can cap your result. Our long read on comparing offers covers how to weigh price against terms.
To check your advisor's work, ask to see every add-back with its evidence, ask which factors put you where you are in the range, and ask what a lender would say about the price. Vague answers are a warning sign. So is a number that seems designed to win your business rather than to hold up with buyers. The fuller method is in what is my business worth.
How we set the range at MDR & Associates
MDR & Associates reviews three years of your financials, meets with you, and gives you a free, confidential opinion of value as a low-to-high range, with the reasoning behind it. When we take a company to market, the financial recast goes into the marketing package so buyers see the same adjusted numbers you do, and we negotiate multiple letters of intent at the same time, step six of our ten-step process. If we do not believe we can sell your company for maximum value, we say so and decline the engagement. Start with a confidential conversation.
Where this fitsBusiness valuation in Texas →