How to Price a Business for Sale

You’re asking what your business is worth. A buyer is asking what it earns without you, and how sure they can be.

Most owners arrive at a number the same way. They take last year’s revenue, apply a multiple they heard at a conference or from a guy at church who sold his company, and land on a figure. Then they anchor to it. Sometimes for years.

That number has almost nothing to do with what the business will sell for, because it’s built on the wrong inputs. Price isn’t a function of revenue, and the multiple isn’t a market rate you look up. A sale price is two things multiplied together: an earnings figure a buyer will actually accept, and a multiple that’s really just a risk score on how reliably those earnings continue after you hand over the keys.

Both of those are things you can change. Most owners find that out 60 days before closing, which is roughly 24 months too late.

This is the largest asset you’ll ever sell, and most owners price it the way they’d price a used truck.

You’ve spent 10 or 20 years building the single most valuable thing you own. For most owners, the business is a bigger number than the house, the retirement accounts, and everything else combined. And the pricing decision usually gets made on instinct, late, under time pressure, with no real understanding of what the person across the table is actually calculating.

The cost of getting it wrong runs both directions, and both hurt. Price it too high and you sit on the market, which is worse than it sounds: a business that’s been shopped for 14 months carries a story, and every buyer who looks after month six is looking for what the others found. Price it too low and you leave money on the table you can never go back for. There’s no second sale.

A few questions worth sitting with. If a buyer asked for three years of clean, normalized financials this week, could you produce them? Do you know what percentage of your revenue comes from your top three customers? If you were unreachable for 90 days, what would happen to the business, and could you prove it rather than assert it? What would a buyer have to hire to replace what you personally do?

Those aren’t valuation questions. They’re the questions that set your multiple, and they’re answerable now, while there’s still time to change the answers.

Your tax return isn’t your earnings figure, and neither is your revenue.

The first number in the equation isn’t revenue and isn’t the net income on your return. It’s normalized earnings: what the business actually produces for an owner, with the personal and one-time items stripped back out.

For smaller businesses this gets called owner’s discretionary earnings. Further up it’s usually adjusted EBITDA. Either way, the exercise is the same. You start with reported profit and add back the things that aren’t really the cost of running the business:

• Your own compensation above market. If you pay yourself $400,000 to run a company a hired manager would run for $200,000, the difference is earnings, not expense. The reverse also applies, and owners hate this one: if you pay yourself $60,000 and work 70 hours, a buyer deducts the real cost of replacing you.
• Personal expenses running through the business. The vehicle, the phone, the travel that was really a vacation. Legitimate add-backs, but every one of them needs documentation, because every one of them will get challenged.
• One-time items. The lawsuit, the flood, the software implementation you’ll never do again. Genuinely non-recurring, and only if you can show it.
• Non-cash charges. Depreciation and amortization, for an EBITDA figure.

Then you take out what the add-backs are hiding. Deferred maintenance. The equipment you’ve been nursing. The role you’ve left unfilled because you’ve been covering it. A buyer finds all of it in diligence, and finding it late costs more than disclosing it early, because it reprices the deal at the worst possible moment.

What to do: Have a third party normalize three years, not one. One year is a snapshot a buyer can dismiss. Three years is a trend they have to price.

Two companies with identical earnings routinely sell for very different numbers.

This is the part that surprises owners most. You can have two home services companies in the same market, same revenue, same normalized earnings, and one sells for four times earnings while the other sells for seven. The difference isn’t negotiation skill. It’s that the buyer is pricing certainty, and one of those businesses is far more certain than the other.

A multiple is the buyer’s answer to one question: how confident am I that these earnings continue without the person who’s leaving? Everything that makes that answer more confident raises the number. Everything that makes it shakier lowers it.

Which means the multiple is largely built, not negotiated. By the time you’re at the table, most of it’s already decided by how the business is constructed. The negotiation moves it at the margins. The construction sets the range.

What to do: Stop thinking of the multiple as a number you’ll argue for and start thinking of it as a score you can raise. Then go look at what it’s scored on.

Every one of these is a structural feature of the business, and every one is fixable with enough runway.

Customer concentration. If your top customer is 40% of revenue, a buyer is purchasing one relationship and hoping. Concentration is the single fastest way to compress a multiple, and it’s usually the thing owners are proudest of.

Owner dependence. If the relationships, the pricing judgment, the technical calls, and the institutional memory all live with you, a buyer isn’t acquiring a business, they’re acquiring a job they have to fill with someone who doesn’t exist. This is the most common reason a good company prices badly.

Recurring or contracted revenue. Revenue you can demonstrate will arrive next year prices higher than revenue you have to go win again. Service agreements, contracts, and genuine repeat patterns all count, if you can evidence them.

Clean books and clean systems. Financials that reconcile, a real close process, documented procedures, no surprises in the data room. This one sounds administrative and it’s worth real money, because every unexplained thing a buyer finds gets priced as risk, and risk gets priced conservatively.

Management depth. A leadership team that makes decisions without you is the proof behind every claim you’ll make about owner independence. Not an org chart. A team with a track record of deciding.

Working capital belongs on this list too, and it’s the one owners can move fastest. One of our clients had receivables sitting past 90 days. Changing one thing, how and when the end-of-job sign-off happened, brought them under 30 days inside a single 90-day cycle and freed millions in cash position. That’s cash that was always theirs, sitting in the business doing nothing, and a buyer prices a company that converts cash quickly very differently from one that doesn’t.

What it looks like when it’s fixed: You can hand a buyer a short document that answers each of the five before they ask, with evidence attached.

Pricing is the last step. The work that sets the price happens two years earlier.

If a sale is somewhere on your horizon, the sequence that works runs roughly like this.

Two years out, get a real baseline. Normalized earnings, an honest read on all five risk factors, and a directional range so you know what you’re starting from. Then pick the two factors that are costing you the most and attack them, because you can meaningfully change two in two years and you can’t change five.

One year out, build the evidence. Clean closes, documented processes, decisions visibly being made by people other than you. A buyer believes a pattern, not a promise, and a pattern takes quarters to establish.

Ninety days out, get an actual valuation from a professional who does them for a living, and assemble the data room before you go to market rather than during.

And one honest caveat, because this matters more than anything else on this page: nothing here is a valuation. Ranges and rules of thumb are a starting point for a conversation, not a substitute for a real valuation from a qualified professional who has looked at your actual numbers, your actual market, and your actual buyer pool. We’re coaches, not valuation firms or brokers. Anyone who gives you a confident number without doing that work is guessing in a way that sounds expensive.

The owner who gets a fair number is the one who stopped being necessary.

Here’s the part that catches owners off guard. Every single thing that raises your multiple is also a thing that makes the business better to own right now. Less customer concentration means you sleep better. Less owner dependence means you can actually leave. Clean books mean you know what’s happening. A team that decides means you stop being the bottleneck.

Which means the two-year sprint to a sellable business isn’t a sacrifice you make for a future transaction. It’s the two years where you get your life back, and the price is the receipt.

One of our owners took two weeks in Italy and never opened his laptop once, which hadn’t happened in 35 years. He came home to a company running better than when he left. He didn’t do that to raise his multiple. He raised his multiple by doing that.

Get a directional range, then go fix what’s dragging it down.

The valuation calculator walks you through normalized earnings and the risk factors above and gives you a directional range in a few minutes. It’s free and the output is yours whether we ever speak.

One honest note on it: the base multiples and adjustment percentages in it are directional estimates set against typical private-market activity. They’re not pulled from a live transaction database. Treat it as a well-informed starting point for a conversation, not a substitute for a real valuation.

This isn’t for everyone. If you’re selling in the next six months, the leverage is mostly gone and you need a broker and a valuation professional, not a coach. If you’re two or more years out, this is exactly the window where the work pays.

Run the valuation calculator. Or book a call and we’ll tell you straight which of the five is costing you the most.