What is the business worth?

How small businesses actually get priced

Public companies trade on discounted forecasts; main-street businesses trade on a plainer bargain — a multiple of what the business demonstrably earns. The buyer is purchasing next year's earnings and the years after; the multiple is how many of those years they will pay for up front, and the market for businesses like yours sets it. That is why the same $260,000 of earnings is a $650,000 laundromat at one end of its range and a $910,000 route business at the other: the multiple carries everything the earnings figure alone cannot — durability, growth, transferability, risk.

How the number is computed

Value = annual earnings × multiple, run at both ends of a range because a single-point valuation is false precision — comps come as spreads, and honest sellers and buyers negotiate inside one. The midpoint is the conversational anchor. Where a deal prices sellable inventory separately, as many main-street transactions do, it is added at cost on top of both ends rather than multiplied — inventory is bought, not capitalized. Two disciplines keep the output defensible: the earnings figure must be a real SDE or adjusted EBITDA with documented add-backs, and the multiple must be quoted on the same basis as the earnings — an SDE figure priced at an EBITDA multiple misvalues the business by roughly the owner's salary times the multiple.

What moves the multiple

Within an industry's range, the business earns its place. Toward the top: revenue that recurs by contract, a customer list no single account dominates, clean books that survive diligence, a team that runs the week without the owner, and earnings that grew through the period being priced. Toward the bottom: the owner as chief technician and chief rainmaker, customer concentration, deferred maintenance on the equipment, and earnings that need the seller's explanations to believe. Size itself moves it — larger earnings attract more buyers and cheaper financing, which is why multiples step up with scale rather than holding flat. The honest exercise is locating your business inside the range, not arguing the range.

Common mistakes

The recurring ones: pricing gross revenue instead of earnings (a $2 million shop earning nothing is not worth a multiple of anything); using last year's one great year instead of a representative period; and letting real estate blur into the business — a building the seller owns is valued separately as property, with the business charged market rent, or the free rent masquerades as business earnings while the building's value goes missing. Add-backs that fail diligence shrink the earnings and the price with them, at the multiple — every unsupported $10,000 costs $25,000–$35,000 in this range. And remember what the result is: a defensible starting range, not an appraisal. Deals close on diligence, financing and terms — a price is only as strong as the books behind it.

Owners who hold property alongside the company are pricing two assets, not one — the free Schedule of Real Estate Owned generator keeps the building's side of the ledger as organized as this page keeps the business's.