One of the most common questions business owners ask when they start thinking about selling is: "What is my business actually worth?" The honest answer is that most owners either dramatically overestimate or underestimate — and both mistakes are expensive.

Overestimating leads to a listing that sits on the market for months, attracts no serious buyers, and eventually sells at a discount. Underestimating means leaving real money on the table. Here is how buyers actually think about value — and what you can do about it.

The Foundation: EBITDA

Almost every business valuation starts with EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the closest thing to a standardized measure of what a business actually earns, stripped of financing decisions and accounting choices.

If your business generates $500,000 in EBITDA, and businesses in your industry typically sell for 4x EBITDA, your baseline valuation is $2 million. Simple in theory. The complexity is in the details.

Seller's Discretionary Earnings (SDE) is a variation used for smaller businesses — typically those under $2 million in revenue. SDE adds back the owner's salary and personal benefits to EBITDA, reflecting the total economic benefit to a single owner-operator. Most small business transactions under $5 million use SDE multiples rather than EBITDA multiples.

What Multiples Look Like in 2026

Multiples vary significantly by industry, size, and growth profile. Here are rough ranges for 2026:

Service businesses (professional services, consulting): 2–4x SDE Retail and food service: 1.5–3x SDE Technology and SaaS: 4–8x EBITDA (sometimes higher for high-growth companies) Healthcare and medical: 4–7x EBITDA Manufacturing: 3–5x EBITDA Franchises: 2–4x SDE, depending on brand strength and territory

These are ranges, not guarantees. A business at the top of its range has clean financials, low customer concentration, strong recurring revenue, and does not depend on the owner to operate. A business at the bottom has the opposite.

The Five Factors That Move Your Multiple

1. Revenue quality. Recurring revenue — subscriptions, retainers, long-term contracts — is worth significantly more than project-based or transactional revenue. A business with 70% recurring revenue will command a higher multiple than an identical business with 20% recurring revenue.

2. Customer concentration. If your top customer represents more than 20% of revenue, buyers will discount your valuation. If your top three customers represent more than 40%, expect a significant haircut. Diversified customer bases command premium multiples.

3. Owner dependency. The most common value killer in small business sales. If the business cannot operate without you — if you are the primary relationship holder, the key technical expert, or the only one who knows how things work — buyers will price that risk into their offer. A business that runs without the owner is worth 2–3x more than one that does not.

4. Growth trajectory. Buyers pay for the future, not the past. A business growing at 20% per year will command a higher multiple than a flat business with the same current earnings. Document your growth story and make it easy for buyers to see the trajectory.

5. Clean financials. Three years of reviewed or audited financials, properly documented add-backs, and a clear picture of true profitability. Messy financials create uncertainty, and buyers price uncertainty as risk.

What Buyers Will Discount

Beyond the five factors above, buyers will reduce their offer for:

• Pending litigation or regulatory issues — any unresolved legal matter is a liability
• Undocumented processes — if the business only works because of tribal knowledge, buyers see risk
• Aging equipment or deferred maintenance — capital expenditure requirements reduce the effective purchase price
• Lease risk — a lease that expires soon or cannot be transferred creates uncertainty
• Key employee risk — if critical employees might leave after the sale, buyers will price that in

How to Get Your Number

The most accurate way to understand what your business is worth today is to run it through a structured valuation process that accounts for all of these factors — not just a back-of-envelope EBITDA multiple.

Your AI Exit Score does exactly that. It evaluates your business across 25 dimensions — financial performance, operational strength, market position, growth trajectory, and exit readiness — and gives you a calibrated score with specific recommendations for increasing your value before you go to market.

The score is not just a number. It is a roadmap. It tells you which levers to pull in the next 6–12 months to move from the bottom of your industry's multiple range to the top.

The Preparation Premium

Sellers who spend 12–18 months preparing before going to market consistently achieve 20–40% higher sale prices than sellers who go to market unprepared. On a $2 million business, that is $400,000–$800,000. The preparation is not glamorous. The payoff is real.

Start with your AI Exit Score. Know your number. Then build toward a better one.