How to Value Your Business: What Really Goes Into a Professional Valuation

Deciding to sell your business is one of the most significant financial and personal decisions you'll ever make. But before you hang the "For Sale" sign, you need to answer a critical question: What is my business truly worth?

While your intuition and years of hard work might give you a rough idea, emotion has no place in a serious transaction. A professional business valuation, performed by an experienced broker like those at KReate Business Brokers, is essential for securing the maximum sale price and attracting qualified buyers.

So, what exactly goes into determining that final, objective number? It's far more complex than a simple glance at your annual revenue.

Beyond the Balance Sheet: Core Valuation Methodologies

Professional valuations typically rely on a combination of methodologies to arrive at a defensible, market-ready figure.

1. The Earnings/Cash Flow Approach (The Multiplier)

For most small to mid-sized businesses, the greatest value lies in the future earnings stream. Buyers aren't purchasing your past—they are purchasing your future cash flow.

This approach is centered around calculating a "Seller's Discretionary Earnings" (SDE) or "Earnings Before Interest, Taxes, Depreciation, and Amortization" (EBITDA), and then applying an industry-specific multiplier.

• Seller’s Discretionary Earnings (SDE): This is the total cash benefit derived from the business by a single working owner. It takes net profit and adds back non-essential expenses an owner may incur (like their salary, personal vehicle costs, or non-essential travel).

• The Multiplier: This factor is derived from market data, risk assessment, and industry trends. A business might be valued at 2.5x SDE, 4x SDE, or more, depending on its stability, growth rate, defensibility, and market desirability.

Key Takeaway: A higher, more reliable cash flow translates directly to a higher multiplier and a higher valuation.

2. Comparable Sales (Industry Comps)

This method answers the fundamental question: What have similar businesses recently sold for?

A professional broker has access to national databases of closed business sales (often inaccessible to the public) that detail sales price, revenue, SDE/EBITDA, and transaction structure. This provides real-world, market-tested evidence for your business’s value.

Factors considered in Comps:

• Geographic location

• Industry and niche

• Revenue range and size

• Profitability margins

• Asset mix (e.g., heavy equipment vs. software)

3. Asset-Based Valuation (When Applicable)

While not the primary method for most profitable operating businesses, an asset-based approach calculates the Net Book Value (or Fair Market Value) of all tangible and intangible assets, minus liabilities. This is often used for:

• Businesses with heavy equipment or real estate holdings.

• Businesses with low or no profitability (where the liquidation value is the floor).

• High-growth tech companies with significant intellectual property (intangible assets).

Why DIY Valuations Fall Dangerously Short

It's tempting to use a quick online calculator or simply pick a number that "feels right." However, relying on a DIY valuation can be catastrophic for your sale process.

Valuation Flaw	Professional Broker Approach	Outcome of DIY Valuation
Cash Flow Calculation	Uses rigorous SDE/EBITDA adjustments to accurately reflect true owner benefit.	Misses key add-backs, understating true profitability, and thus undervaluing the business.
Multiplier Selection	Uses current, defensible market data and assesses risk factors accurately.	Arbitrarily chooses a number, leading to an unrealistic price that scares away buyers.
Market Comps	Accesses proprietary, national databases of closed transactions.	Relies on anecdotal evidence or unreliable listing prices (which may never sell).
Confidentiality	Conducts the entire process discreetly, protecting employees and customers.	Inadvertently signals a sale too early, causing staff flight or customer uncertainty.

A low DIY valuation leaves money on the table. A high DIY valuation wastes time, kills momentum, and forces you to re-list at a lower price, which signals desperation to savvy buyers.

The KReate Difference

At KReate Business Brokers, our professional valuation process is designed to find the sweet spot: the highest possible price the current market will bear. We don't just generate a number; we create a detailed, data-backed justification for that price, which gives buyers confidence and facilitates smooth financing.

If you are serious about selling and maximizing your return, don't guess—get professional clarity. Contact KReate Business Brokers today to schedule your confidential consultation and take the first step toward a successful sale.