How do I know what my business is worth?

The arithmetic is the easy part. Two businesses with identical earnings can be worth materially different amounts, and the gap is entirely about how confident a buyer is that the earnings continue once the current owner leaves.

Step one: work out the real earnings

Reported net profit understates what an owner-operator actually receives, because it is after their own salary and after personal expenses run through the business. Normalizing means adding those back to reach SDE. Each add-back needs evidence — a buyer’s accountant will remove any that are really ongoing costs, and unevidenced add-backs make a buyer distrust the rest of the numbers.

Step two: understand what moves the multiple

• Recurring or contracted revenue rather than one-off project work
• A management layer, so the business is not the owner
• Customers spread widely rather than concentrated in a few accounts
• Clean financial statements a lender can underwrite without a fight
• Assets a lender will finance, which widens the pool of buyers who can close
• A lease with real term remaining, where the business is location-dependent

Step three: check it against reality

A price is only meaningful if a buyer can finance it. A number that no lender will support against the business’s cash flow is not a valuation, it is an aspiration — and it is the most common reason a listing sits for a year without closing.

The mistakes that cost the most

Three recur. Pricing from what the owner needs for retirement rather than what the business earns. Applying a multiple heard from another industry, or applying an SDE multiple to EBITDA earnings — which are not interchangeable and produce a number wrong by a wide margin. And counting add-backs a buyer will not accept, which does not just reduce the price during diligence but makes the buyer question every other number they have been shown.