What Is My Business Worth?

Most small businesses sell for their cash flow times a multiple. Cash flow is what the business truly earns for the owner in a year. The multiple is how many years of that cash flow a buyer pays for up front.

The short version

The price of a small business is cash flow times a multiple. Everything else in this article explains where the two numbers come from.

The ranges below are typical market ranges. They are here to teach the math. They are not a promise about your business, and they are not an offer.

The businesses we look at run from $1M to $10M in revenue. We look for at least $300K in cash flow that tax returns can prove. Everything you share with us stays confidential.

Start with cash flow

Buyers start with a number called seller cash flow. It is the profit the business makes in a year. On top of that profit sits everything the business pays for the owner.

Start with the profit on the tax return. Add back the salary you pay yourself. Add back the perks the business covers for you. A truck the business pays for counts. So does a health plan the business carries. The total is what the business really puts in your pocket each year.

A buyer is purchasing the income the business produces. Your salary is part of that income, because the business will not pay it to you after a sale.

Buyers build this number from your tax returns. That is the version of the business you already signed your name to. A buyer cannot price a number the owner will not stand behind. This is why we ask for cash flow that tax returns can prove.

Then the multiple

The multiple is the second half of the price. It states how many years of cash flow a buyer pays today.

Small service and staffing businesses commonly trade around 2.5x to 4x cash flow. Consulting firms commonly trade around 2x to 3.5x. These are typical ranges for businesses of this size. Where a business lands inside its range depends on the sections below.

That gap is why owners should care about the multiple. The next two sections cover what a buyer is reading.

What moves the multiple up

Buyers pay more for income they can count on. These are the signs they look for.

• Revenue that comes back every month under contract
• A client book spread across many customers
• A team that runs the work without the owner
• Clean books that match the tax returns
• Steady growth over the last few years

Each sign lowers the risk in the buyer’s eyes. Lower risk supports a higher multiple. None of these signs requires a bigger business, only a steadier one.

What moves it down

The other side of the ledger is just as plain. These are the patterns that pull a multiple toward the bottom of its range.

• One customer carrying most of the revenue
• The owner doing every job that matters
• Messy books with gaps a buyer cannot follow
• Work that hinges on the owner’s personal license

Each pattern ties the income to one person or one relationship. A buyer prices that tie honestly.

Why two buyers give two numbers

Two buyers can study the same business and land on different prices. The difference usually sits in the structure of the deal.

One buyer may offer a lower price with most of it paid at closing. Another may offer a higher price with part of it paid over time. The second offer carries more risk for the seller, so the higher headline number is not always the better deal.

Transition terms move the number too. A buyer who needs the owner on hand for a year prices that need into the offer. A business that can change hands cleanly gives the buyer less to worry about.

Tax treatment matters as well. The same price can leave a seller with different money after tax, depending on how the deal is built. This is why a real valuation ends in a conversation about structure, not just a number on a page.

Frequently asked questions