Why it matters before you decide anything
Every route in these guides, from a full sale to an ESOP or handing over to family, starts with a value. Knowing it early tells you whether a sale today would meet your needs, how far the business is from the number you have in mind, and which improvements would close the gap. Owners who learn their value only when an offer arrives have no way of judging it.
How buyers arrive at a number
- Start with reported profit. Buyers look at the last three years and the current year, ideally from accounts reviewed or audited by an outside accountant.
- Adjust it. Add back costs that will not continue under a new owner: the owner's salary above a market rate, family members on the payroll who will not stay, one-off legal costs, personal expenses. Deduct anything unusual that flattered profits. The result is adjusted EBITDA.
- Apply a multiple. The multiple reflects what similar companies have sold for and how risky this one looks. For private-equity deals involving companies valued at $10-25 million, GF Data reports average multiples of 6.2-6.7 times EBITDA in the first half of 2025, and 5.8 times across manufacturing.
- Arrive at enterprise value. Adjusted EBITDA times the multiple is the value of the business as a whole, assuming it comes with no debt, no spare cash and a normal level of working capital.
- Bridge to your proceeds. Subtract debt, add cash, and adjust for any difference between actual and normal working capital. Then come fees and tax.
Buyers also check the answer against cash flow (what the business can borrow against and repay) and, for strategic buyers, against the savings they expect from combining it with their own business.
What moves the multiple
Up - Size. Larger companies are seen as less risky: GF Data finds nearly a full turn of EBITDA between companies valued below $10 million and those valued at $10-25 million. - Recurring or contracted revenue, such as service agreements, maintenance contracts and long-term supply agreements. - A management team that can run the business without you. - A broad customer base, with no customer above about 15-20% of sales. - Steady growth, and a clear plan for more. - Clean, timely financial reporting. - A niche position: specialized certifications, licences, reshoring demand, hard-to-replicate capabilities.
Down - Dependence on the owner for sales, key relationships or technical know-how. - One or two customers making up a large share of revenue. - Profits that swing from year to year, or that rose only last year. - Old equipment needing investment soon, or deferred maintenance. - Unresolved legal, environmental or tax issues.
A worked example
Our illustrative company is a family-owned precision fabricator in Ohio with $40 million of revenue. Its reported EBITDA is $3.6 million. The owner pays himself $650,000, against a market salary of $300,000 for a replacement CEO, and last year spent $50,000 on a one-off legal dispute.
| Step | Amount |
|---|---|
| Reported EBITDA | $3.60m |
| Add back: owner pay above market ($650k less $300k) | + $0.35m |
| Add back: one-off legal costs | + $0.05m |
| Adjusted EBITDA | $4.00m |
| Multiple (illustrative) | 6.0x |
| Enterprise value | $24.0m |
| Less: equipment loan | - $1.5m |
| Plus: cash in the business | + $0.5m |
| Equity value before fees and tax | $23.0m |
A one-turn difference in the multiple is worth $4 million here. That is why the factors above, and how the company is presented to buyers, matter as much as the profit figure itself.
Want an indicative view of what buyers would pay for your company? It takes one confidential conversation.
Book a confidential callWhy online calculators and rules of thumb mislead
Rules of thumb ("businesses sell for three times profit") and online calculators blend very different businesses and deal sizes. Most published multiples also mix sellers' discretionary earnings, used for small businesses, with EBITDA, used for companies like yours. A precision manufacturer with a strong team and contracted customers and one that depends on its founder can sell at multiples two or three turns apart, even with the same profit.
What you can do to raise the value
- Get your financials reviewed by an outside accountant, and consider a sell-side quality of earnings report before going to market.
- Build the team. Name a second-in-command and let them run things while you step back.
- Spread the customer base, or lock key customers into longer contracts.
- Deal with known issues early: real-estate leases, environmental reports, disputes, licences.
- Give it time. Most of these take one to three years to show in the numbers.
How ExitBuy helps
We give owners an indicative valuation based on how buyers in their sector are pricing deals today, explain what drives it, and identify the changes most likely to move it. There is no charge for that first conversation and no obligation to sell. When the time comes, a competitive process with several buyers is the most reliable way to turn that value into an actual price.
Frequently asked questions
Is EBITDA the same as profit?
No. EBITDA is profit before interest, tax, depreciation and amortization. Buyers use it because it compares operating performance regardless of how the business is financed or taxed.
Why do buyers deduct my debt from the price?
Because the price is for the business free of debt. If the company owes $1.5 million, that is repaid at closing from the proceeds.
Will a strategic buyer pay more than a private equity fund?
Sometimes. A competitor that can cut overlapping costs may pay more. Running a process that includes both is the way to find out.
Does my real estate count?
Usually it is valued separately. Many owners keep the property and lease it to the buyer, which adds a rental income stream.
How often should I get a valuation?
Every year or two if a sale is on the horizon, and always before talking to a buyer who approaches you.
Can I sell for more than the multiple suggests?
A competitive process, a strategic buyer, or a business with strong growth can push the price above the average. The averages are a starting point, not a ceiling.
Mauro Terrinoni, CFA, founder of ExitBuy Co. 25 years in investment banking and private equity, including at JP Morgan, Citigroup and Fortress Investment Group, and has bought, run and sold a company as its owner.
General information only, not investment, legal or tax advice. Figures are illustrative. Tax rules change; confirm current law with your own advisors.