Valuation
What is my business worth? How buyers actually value a private company
EBITDA, SDE, multiples and add-backs — what a buyer really pays for, and why an online calculator is not a valuation
By Michael D. Rubin, CEO & Founder · September 2026 · 1,709 words
A profitable private company in Texas is usually worth a multiple of its adjusted earnings — most often somewhere between three and seven times adjusted EBITDA for a business in the $3 million to $100 million revenue range. Where you land inside that range has almost nothing to do with your revenue and almost everything to do with four things: how reliable the earnings are, how concentrated the customers are, how well the records hold up, and whether the company can run without you.
That is the honest version of the answer. What follows is how each part of it works, so that when somebody quotes you a number you can tell whether they have thought about it or simply multiplied.
Value starts with earnings, not revenue
Buyers do not buy revenue. They buy the profit that revenue produces, and then only the part of that profit which will still be there after you leave.
For companies in our range the earnings figure is normally adjusted EBITDA — earnings before interest, tax, depreciation and amortization, with the owner's own economics stripped back out. Smaller owner-operated businesses are often valued on SDE, seller's discretionary earnings, which leaves one owner's full compensation in the number. The distinction matters: the same company can be quoted at 3× SDE or 5× EBITDA and mean roughly the same money.
| Term | What it means | Typically used for |
|---|---|---|
| EBITDA | Earnings before interest, tax, depreciation and amortization | Companies with management in place, usually above $1M of earnings |
| Adjusted EBITDA | EBITDA with owner perks, one-off costs and above-market pay added back | What almost every buyer of a lower middle market company actually works from |
| SDE | Adjusted EBITDA plus one owner's full compensation and benefits | Owner-operated businesses where the buyer intends to run it themselves |
| Enterprise value | The value of the business itself, before debt and cash are settled | The headline number in a letter of intent |
Add-backs: the part sellers get wrong
An add-back is a cost in your accounts that a new owner would not have. Your salary above what a manager would cost. The vehicle that is really personal. The one-off legal bill from the dispute that has since settled. Each of these legitimately raises adjusted earnings.
The mistake is treating add-backs as a negotiation. They are an evidence exercise. Every add-back needs a paper trail a buyer's accountant can follow, from invoice to general ledger to the tax return. An add-back you cannot document is not an add-back; it is a number the buyer strikes out in diligence, and each one you lose comes off at the multiple. A $60,000 add-back removed from a company selling at 5× costs you $300,000.
Before you go to market, list every add-back you intend to claim and put the documentation behind each one in a folder. If you cannot, do not claim it.
What decides the multiple
Two companies with identical adjusted EBITDA routinely sell for very different prices. This is what moves the number, roughly in order of weight:
- Owner dependence. If customers buy because of you, if pricing lives in your head, if you approve every quote — the buyer is purchasing a job, and prices it as one. This is the single largest discount we see applied.
- Customer concentration. One customer at 40% of revenue is a risk the buyer has to price. Long relationships and written contracts reduce the discount; they do not remove it.
- Revenue quality. Contracted and recurring revenue is worth a multiple of the same revenue won again each year from scratch.
- Earnings direction. Three years of growth reads as a business. Three years of decline reads as a liquidation, and gets priced accordingly.
- Record quality. Financial statements that reconcile cleanly to tax returns raise the multiple by removing doubt. Records that do not, cost more than most owners believe.
- Management depth. A second layer of people who can run the operation makes the company sellable to buyers who are not going to run it personally — which is most of the buyers with the deepest pockets.
- Industry. A manufacturer with equipment and backlog, a distributor with supplier agreements and a service company with recurring contracts are all valued on different logic. See how buyers value your sector.
Why an online calculator is not a valuation
Online calculators apply an industry-average multiple to a number you typed in. They cannot see your customer concentration, your add-back documentation, your lease assignability or your management depth — which is to say they cannot see any of the things that actually decide your price.
There are three genuinely different products, and it is worth knowing which you are being offered:
- An opinion of value — a broker or advisor's informed range, usually free, useful for deciding whether to go further. That is what our free valuation snapshot is.
- A formal third-party valuation — performed by an accredited appraiser, defensible in front of a lender, a court, a tax authority or an ESOP trustee. Ours take 10 to 14 business days from receipt of documents. What that involves.
- A market test — taking the company to several qualified buyers and seeing what they will actually pay. It is the only method that produces a real number, and it is what a sale process is.
What buyers will ask for
Whichever route you take, prepare these before anyone asks. Owners who have them ready are quoted better numbers, because uncertainty always gets priced against the seller.
- Three years of federal income tax returns for the entity
- Three years of profit and loss statements and balance sheets, plus interim statements for the current year
- A schedule of add-backs with documentation behind each one
- An equipment and asset list, with age and condition
- Customer revenue by customer for the last three years
- Lease agreements, licenses and any contracts that do not transfer automatically on a change of control
How much does a valuation cost, and when should you get one?
A snapshot opinion of value should cost nothing. A formal appraisal is a paid engagement and is priced on the complexity of the business, not on its size.
On timing: the most useful valuation is the one you get twelve to twenty-four months before you intend to sell, because that is the window in which you can still change the answer. A valuation obtained the week before you go to market tells you the score. A valuation obtained a year out tells you what to work on — and that work is what pre-exit consulting is.
One more thing worth knowing
Enterprise value is not what arrives in your account. Between the headline number and your bank balance sit debt repayment, a working capital adjustment, an escrow holdback, any earnout, transaction costs and tax. Two offers with the same headline can differ by a quarter in what you actually keep. We wrote about that separately in how to compare offers.
If you want a number specific to your company rather than a range from an article, ask for one. It is confidential, it costs nothing, and it commits you to nothing.
What buyers pay for, sector by sector
The general logic above holds everywhere, but the specific thing a buyer is pricing changes with the industry. It is worth knowing which conversation you are going to be in.
| Sector | What lifts the multiple | What a buyer discounts |
|---|---|---|
| Manufacturing | Backlog, proprietary tooling, qualifications and approvals, maintained equipment | Deferred capital expenditure, one dominant customer, an owner who is also the plant manager |
| Construction & trades | Signed backlog, transferable bonding, recurring service revenue | Earnings that swing without explanation, a license held personally, unreconciled work in progress |
| Distribution | Exclusive supplier agreements that survive a change of control, repeat reorder patterns | Slow-moving inventory, thin margins, a single large account |
| Business services | Contracted recurring revenue, low churn, a second layer of management | Customers who buy because of the owner, contracts that terminate on change of control |
The three numbers to have in front of you
Whatever an advisor tells you, you can sanity-check it with three figures. If you cannot produce them, that is itself the answer to what to do next.
- Adjusted EBITDA for the last three years, with each adjustment documented. Not an estimate, not last year alone.
- Revenue by customer for the last three years. The concentration percentage is the number that most often changes a valuation after the first conversation.
- Hours you personally work in the business, and on what. Buyers price the cost of replacing you. So should you, before they do.
Common mistakes owners make about value
- Anchoring on revenue. "We do $12 million" tells a buyer almost nothing. Two $12 million companies can be worth $3 million and $9 million.
- Using a friend's multiple. A neighbor's business sold at 6× — in a different sector, to a strategic buyer, with a management team in place. None of that is transferable.
- Believing the highest opinion. Some firms quote high to win the listing, then spend six months explaining the reduction. Ask what would make the number lower; the honest answer is more useful than the high one.
- Waiting for a better market. A prepared business sells well in a soft market. An unprepared one sells poorly in a strong one. When is the right time to sell?
- Confusing valuation with proceeds. Debt, working capital, escrow, earnout and tax all sit between the two. How to compare offers properly.
So what should you actually do
If a sale is more than a year away: get an opinion of value now, so the twelve months of work you do is aimed at the things that move the number rather than the things that feel productive.
If a sale is within a year: get the records reconciled and the add-back schedule documented before anything else. It is the cheapest work with the largest effect on what a buyer will believe.
If someone has already made you an offer: find out independently what the company is worth before you respond at all. What to do with an unsolicited offer.
In every case the starting point is the same, and it costs nothing. Ask us for a confidential opinion of value: four fields, a reply the same business day, and nobody is contacted.