Simplifying the Valuation: What Is for Sale and Which Earnings Count

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 756 words

The simplest way to approach a valuation is to answer three questions in order: why the value is needed, exactly what is being sold, and which earnings a buyer should rely on. Most arguments about what a company is worth come from skipping one of them, so two people end up valuing different things.

Valuation involves judgment, and no method removes it. But answering these questions first turns an argument about a number into a discussion of facts.

Settle the purpose first

The same company has different values for different purposes. Value for a sale as a going concern differs from value in a liquidation, and an orderly liquidation yields more than a forced one. A valuation for estate or gift tax purposes usually uses fair market value, the price informed, unpressured parties would agree on. A sale to a particular buyer may reflect investment or strategic value, which includes what that buyer alone can gain. In litigation, a court or a statute may decide which standard applies.

In a sale, each side also has its own number. The seller should know the floor, the lowest price worth accepting after debt and taxes. The buyer knows its walk-away price, the most it will pay. The deal happens between the two.

Write the purpose at the top of any valuation you commission. A report prepared for an estate plan may be conservative by design, and quoting it to a buyer later can undercut your own price.

Define exactly what is for sale

• Is real estate included, or will it be leased to the buyer? Our answer on whether real estate belongs in the sale price covers the choice.
• Which equipment is owned and which is leased, and do the leases transfer?
• Are there assets that earn nothing, such as idle machines or excess inventory, that should be sold first?
• What is proprietary: formulas, software, processes, trademarks, and are they registered to the company?
• Do key employees have confidentiality or non-solicitation agreements that stay with the business?
• How much working capital must the company keep to operate normally?

Agree which earnings count

When a seller says earnings, the buyer will ask which ones. EBIT or EBITDA? Last year, the trailing twelve months, an average of three years, or next year's forecast? EBITDA before or after the capital spending needed to maintain the equipment? Adjusted for owner-specific costs, and which ones? Each choice changes the figure, and each should be written down.

Direction matters as much as the level. A rising trend supports a higher multiple; a falling one invites a buyer to price the next year, not the last. Buyers also look for changes ahead: a rent increase after a lease renewal, family members coming off the payroll, a customer or supplier that may leave. Be cautious with long-term fixed-price contracts that stop the company from raising prices, and with commodity-like products whose recent margins may not last.

The judgment questions

Once the facts are settled, a few questions shape the multiple a buyer applies to those earnings:

• What is the company's competitive advantage: a niche, better service, lower costs, stronger relationships?
• How hard would it be for a new competitor to enter: capital, licenses, skilled labor, customer trust?
• Where would growth come from, and can the company actually grow?
• How deep is management, and how much depends on the owner?
• How reliable is the financial reporting, and does management use it to run the company?

Value is not what arrives at closing

Even a clean valuation usually describes enterprise value, the price for the business before debt is repaid, before working capital adjustments, and before any deferred payments. What reaches your account at closing can be quite different. Our answer on enterprise value versus the amount you receive at closing walks through the steps from one to the other.

Knowing the path from headline to net proceeds also sharpens your floor price. Your CPA can estimate the tax on each structure, and your advisor can estimate the likely debt payoff, working capital target and escrow, so the floor you carry into negotiations is a real number rather than a hope.

How we keep it simple

In a free, confidential discovery meeting we work through these questions with you and give an opinion of value, a low-to-high range, after reviewing three years of financials. If you need a formal valuation for estate, gift or partnership purposes, our business valuation service provides a written report at a separate price. For a quick first range, request a free valuation snapshot.

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Questions owners ask next

Why would a liquidation value ever matter to a profitable company?

It sets a floor. If a company's assets could be sold for more than a buyer offers for the running business, something is wrong with the offer or with the earnings. Liquidation value also matters to lenders, who look at what they could recover if the loan went bad.

Should my valuation use projections or past results?

Buyers rely mainly on past results, usually three years and the current year to date, and treat projections as a story that has to be earned. Projections help when they are grounded in signed contracts, backlog or a proven track record of hitting your own forecasts.