Want to know what it’s actually worth?
Here’s the brutal math.
There are several ways to value a business, but service-based businesses usually fall into a fairly simple formula:
Multiple Times Profit
“But what’s the multiple?”
That depends on a couple of things, but let me try to simplify it into a few categories:
Owner Operated: ~2.2x avg
- Multiple of SDE (Seller’s Discretionary Earnings)
- Under $10M in sales
- Under $2M in SDE
- You run everything
Professionally Managed: ~4.8x avg
- Multiple of EBITDA
- Under $10M in sales
- Under $2M in EBITDA
- Professional team runs it without you
Professionally Managed with Higher Profit Levels: 12.3x avg
- Multiple of EBITDA (Private Equity target)
- Over $10M in sales
- Over $2M in EBITDA
- Proven systems + growth trajectory
Big Enough That Public Companies Care: 30x+
- NASDAQ PE Multiples (IPO or SPAC)
- Public market ready
Notes: SDE and EBITDA are fancy words for profit. Multiples sources: Dealstats and alphasense
Most of the companies I talk to are in the first category: Owner operated
Notice the jump from 2.2x to 4.8x?
Same revenue. Same profit.
The only difference: You fired yourself.
Every hour you’re irreplaceable, you’re cutting your valuation in half.
Which category are you in?
More importantly—which one do you want to be in?