Your business sells for what it earns, adjusted by what comparable businesses in your industry and size range actually sold for, and limited by what a buyer’s lender will finance. No single figure applies across an industry, because two businesses with identical earnings routinely sell for very different prices.
That is not a dodge. It is why online calculators and rules of thumb produce numbers that fall apart the moment a real buyer looks at them.
How much is my business worth?
Worth and sale price are close but not identical. A business appraisal answers what an asset is worth under a defined standard, usually for tax, legal, or estate purposes. A sale valuation answers what a buyer will pay and what a bank will fund. Owners preparing to sell need the second one, and the gap between them can be substantial.
Either way the math starts in the same place, with earnings.
It starts with earnings, not revenue
Buyers do not purchase revenue. They purchase the money the business puts in an owner’s pocket, and your tax return does not show that figure. A tax return exists to make income look as small as the law allows, which is the opposite of what a sale requires.
Getting to the real number means rebuilding your financials. Your compensation goes back in. Personal expenses the business covers go back in. One time costs that will not repeat for the next owner come out. What remains is the earnings a buyer is actually buying, and every adjustment has to hold up when a lender reviews it.
How valuation multiples actually work
Once earnings are right, a multiple gets applied to them. That much is simple. What trips owners up is where the multiple comes from.
It does not come from a published chart. It comes from comparable sales, meaning what businesses like yours, in your industry and your size range, actually sold for. Not what owners asked. What buyers paid. Those transactions establish a range, and the range moves with the size of your earnings.
This is why a multiple you heard from another owner rarely applies to you. Their industry, size, customer mix, and the year they sold all moved their number. A multiple quoted without comparable sales behind it is a guess wearing a number.
Is a business worth 4x revenue?
Almost never, and revenue multiples are the most misleading figure circulating among owners. A business doing $2 million in revenue at a 5% margin and one doing $2 million at a 30% margin are not remotely the same asset, but a revenue multiple treats them identically.
Buyers and lenders price small businesses on earnings, not revenue. Revenue multiples appear in narrow contexts, usually high growth software or companies with no earnings to speak of. If someone quotes you one, ask what the earnings multiple implies.
Where you land inside the range
Two businesses in the same industry with the same earnings can sell for very different prices. Five factors separate them.
How much depends on you. If the business runs on your relationships, your knowledge, and your presence, a buyer sees risk. If a team runs it without you, a buyer sees an asset.
How concentrated your revenue is. Revenue spread across many customers prices better than revenue where a few carry most of it, and the same applies to suppliers.
How clean your financials are. Books a lender can underwrite without a long list of questions protect both your price and your timeline.
Where your growth is going. A business growing on its own momentum prices differently than one that has plateaued, and buyers look at the trend rather than your best single year.
Whether your team stays. A management team that operates the business after you leave is one of the few factors that pushes a business to the top of its range.
The ceiling nobody mentions
Most business sales close with financing, and a lender is not looking at the same number you are. A lender looks at whether the business covers its debt service after the buyer pays themselves. A price that fails that test is not a price, it is a delay. We price against what a lender will actually fund, before the business goes to market rather than after an offer collapses.
What happens when the number is wrong
An inflated price sits on the market. Informed buyers pass on it, and by the time the price comes down, they have moved on. You lose time and you lose the buyers most likely to close. Pricing too low leaves money on the table you never get back.
Finding out what your business is actually worth
A small business valuation takes about a week once we have your documents and your questions answered, and it commits you to nothing. Plenty of owners request one, learn where they stand, and spend the next 2 years raising that number before going anywhere near the market.
90% of the businesses we list sell at or above the listing price, and that happens because we price them accurately rather than optimistically.
Frequently asked questions about business valuations
Can I use a business valuation calculator?
A calculator applies a single multiple to a number you enter. It cannot normalize your financials, defend your adjustments, or account for the risk factors a buyer’s lender will examine. Use one to sanity check the figure in your head, then get a real opinion before you price anything.
What multiple will my business sell for?
Comparable sales in your industry and size range establish the range. Owner dependence, customer concentration, financial quality, growth, and team strength decide where inside that range you land. Any firm quoting a multiple before reviewing your financials is guessing.
Do I have to sell if I get a valuation?
No. A valuation tells you where you stand, and selling may not be the right call.
Contact Us
Contact Rocky Mountain Business Advisors to schedule a confidential consultation with our team.
In your corner,
Jules Francesca
Wyoming Business Advisor | Rocky Mountain Business Advisors
307.200.7274
jules@rockymountainba.com
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