Short answer: a healthy lower-middle-market services business sells for a multiple of its real yearly profit. Not its revenue. Not the thin number on your tax return. Real profit is what the business puts in your pocket once you add back your salary and the personal expenses you run through it. The multiple is the easy part. What moves your number is how clean those earnings are, how much the business depends on you, and who is sitting across the table.
That last part is the part nobody tells you.
Start with earnings, not revenue
Most owners ask about their multiple before they have settled what it is a multiple of. Get that backwards and every number that follows is wrong.
For a smaller, owner-run business, the base is your seller's discretionary earnings. SDE for short. That is your net profit, plus your own salary, plus the personal expenses that run through the business, plus one-time costs that won't follow the sale. For a larger business that already runs without the owner, buyers use EBITDA instead. That stands for earnings before interest, taxes, depreciation, and amortization. It is a banker's way of saying profit before financing and accounting choices muddy it up. Either way the goal is the same. Strip the books back to what the business actually earns for whoever owns it next.
What actually changes your multiple
Two businesses with identical earnings can sell for very different numbers. Three things drive the gap.
- How much the business depends on you. If it stops working the day you leave, a buyer is buying a job, not a company. They pay like it. If it runs without you, or can with a general manager in the seat, the multiple climbs.
- How durable the revenue is. Recurring service contracts, route density, repeat customers. Earnings a buyer can count on next year are worth more than a great year that might not repeat.
- How clean and provable the books are. A number you can document in diligence is worth more than a bigger number you can only assert.
"But my accountant says we barely make money"
Good. That is the accountant doing their job. Your books are built to minimize taxes. Understated earnings, personal expenses run through the business, aggressive write-offs. It is smart tax strategy and terrible valuation strategy, because on paper it makes a profitable business look marginal.
A buyer does not value the tax-optimized version. They normalize it. They add back the owner's salary, the personal costs, and the one-timers to see what the business really produces. Those are add-backs. For a lot of owners they are the difference between "barely profitable" and a seven-figure sale.
The number is a range until a buyer makes it real
Here is the honest part. Until an offer is on the table, your valuation is a range, not a figure. And the same business is worth different amounts to different buyers.
- An individual buyer using SBA financing is limited by what the loan will support.
- A financial or absentee buyer cares about cash flow after debt payments and whether an operator can run it.
- A private equity or platform buyer rolling up your category may pay more for strategic fit than the standalone number suggests.
Structure moves the number too. A seller note, an earnout, or rolling a slice of equity into the next chapter can lift the headline price. It can also bridge a gap that would otherwise kill the deal. Two offers at the same price are not the same offer.
We have sat on both sides of this table. We have bought businesses, sold businesses, and taken SBA loans ourselves. Some of those went well. Some we got wrong. The mistakes are exactly what we help owners avoid. You can see how that plays out on a real deal in our Colorado HVAC case study, and across the rest of our closed transactions.
Category matters too. If you run a trades business, the specifics of an HVAC exit are laid out in How to Sell Your HVAC Business.
What to do before you trust any number
- Rebuild your earnings as SDE or EBITDA, with every add-back documented, not remembered.
- Be honest with yourself about how dependent the business is on you.
- Separate recurring revenue from one-time revenue. Buyers will.
- Do not anchor on a broker's teaser number. It is a marketing figure, not a valuation.
- Get a real range from someone who has closed deals in your category. The multiple that matters is the one buyers are paying right now, not the one in a textbook.
A valuation is not a formula you run once. It is what a real buyer will pay for what your business really earns. Most owners are worth more than their tax return makes them look, once someone does the work to prove it.
Want a starting number? Talk to us about what your business is worth.
