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INSIGHT / COMPANY VALUE

How to Value a Business and Raise Its Worth

How to value a business: the three methods, which one fits your size, a worked example, and the seven things you control that move what a buyer pays.

By Timur GrigorchukPublished November 8, 20265 min read

The short answer

To value a business, most owners multiply normalized earnings by a multiple. Small owner-run firms use seller's discretionary earnings. Larger firms use EBITDA.

Discounted cash flow suits companies with forecastable growth, and asset value suits asset-heavy or struggling ones. Private equity buyers reported an average 7.0x EBITDA in the second quarter of 2026 (GF Data).

Your multiple depends on risk, and several risk factors are yours to change.

In this article 8 sections
Four steps from normalized earnings to a multiple that rises as customer, owner and numbers risk fall
A planning estimate, not an appraisal.
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The five lessons

Read these if you read nothing else.

  1. Value is normalized earnings times a multiple. Both parts are negotiable, and you control more of them than you think.
  2. Size picks the method: discretionary earnings for owner-run firms, EBITDA for larger ones, discounted cash flow for forecastable growth.
  3. Buyers pay for lower risk. Owner dependence and one big customer cost more than a weak quarter.
  4. Published multiples are averages of deals that closed. Yours depends on your size, trade and how clean the numbers are.
  5. A planning estimate is not an appraisal. A tax filing, estate plan or partner dispute usually needs a credentialed appraiser. In a sale, test the price with your advisers.

What are the common ways to value a business?

Three methods cover almost every case: earnings multiples, discounted cash flow and asset value. Earnings multiples come in two forms, so there are four cards. The IRS ruling that frames fair market value, Revenue Ruling 59-60 (1959), says no single formula fits and names earnings as possibly the most important criterion. It is old, and appraisers still cite it.

  • Multiple of seller's discretionary earnings (SDE)

    How it works
    Profit plus the owner's pay and personal costs, times a multiple
    Where it fits
    Owner-run firms where one person is the job

  • Multiple of EBITDA

    How it works
    Earnings before interest, tax, depreciation and amortization, times a multiple
    Where it fits
    Firms with a manager in place, usually from the low millions of EBITDA upward

  • Discounted cash flow (DCF)

    How it works
    Forecast cash flows, discounted to today at a rate that reflects risk
    Where it fits
    Predictable or fast-growing firms with a credible forecast

  • Asset value

    How it works
    Assets minus debts at market value
    Where it fits
    Asset-heavy, loss-making or winding-down firms. A floor for the others
The methods, by size and situation. Our operating view.

What multiple do buyers actually pay?

Published multiples are averages of closed deals in one size band. Use them as a range check, never as your price. Small firms and private equity deals sit far apart, so the source matters.

See the samples behind these numbers
Newest first. Averages of closed deals, not forecasts or offers.
FindingSampleSource
Median sale price $350,000, up 17% on a year earlier#2,132 small businesses sold in Q3 2026BizBuySell Insight Report, Q3 2026
Average purchase price 7.0x trailing 12-month adjusted EBITDA, down from 7.3x in Q1#85 private equity deals in Q2 2026, in a $1 million to $500 million range, none closed above $250 millionGF Data via ACG, 2026
Average cash flow multiple 2.7, revenue multiple 0.7#2,117 small businesses sold in Q2 2026BizBuySell Insight Report, Q2 2026, as reported by Small Business Trends
Deals now need 10% to 12% yearly EBITDA growth for 2.5x in five years, against 5% in the 2010s. Multiple expansion is gone#Bain Global Private Equity Report, February 2026Bain & Company, 2026

Worked example: what is a $1 million EBITDA company worth?

Example: a services company with $8 million of revenue and $1 million of normalized EBITDA. A buyer in its size band might pay 4x with a weak risk profile and 6x with a strong one. The multiples here are illustrations, not market data.

At 4x the company is worth $4 million. At 6x it is worth $6 million. The $2 million gap comes from risk, and the next section shows which risks you can change.

Growth matters too. Bain reports typical private equity deals now need 10% to 12% yearly EBITDA growth. So a buyer of this size will read your growth plan as closely as your past results. Show the numbers behind it.

What raises the multiple, and what to do in the next 12 months?

A buyer prices risk. Each card is something an owner controls, the number a buyer reads and the 12-month move. The thresholds are our rules of thumb, not published data. For the operating side, read how to scale a business.

  • Customer concentration

    Number a buyer reads
    Share of revenue from the top customer. Our rule: under 10% is calm, over 25% is a discount
    Next 12 months
    Grow the other accounts. Sign a multi-year renewal with the top one

  • Owner dependence

    Number a buyer reads
    Hours the owner spends in sales, quotes and approvals. The ruling notes the loss of a one-man manager can depress value
    Next 12 months
    Move quoting and key relationships to named people. Document the owner's decisions

  • Recurring revenue

    Number a buyer reads
    Share of revenue under contract or repeat orders
    Next 12 months
    Offer plans and renewals. Report repeat revenue monthly

  • Retention

    Number a buyer reads
    Customers who return in 12 months, and revenue kept from existing accounts
    Next 12 months
    Set one owner and a rule for follow-up after the job. See customers who buy once and leave

  • Clean numbers

    Number a buyer reads
    Months of monthly closes with no restatement, and add-backs a buyer accepts
    Next 12 months
    Close monthly. Separate personal costs. Keep one definition of each revenue figure

  • Measured lead flow

    Number a buyer reads
    Leads, booked appointments and sold jobs by source, from the CRM
    Next 12 months
    Track every lead to the sale. A buyer can then underwrite growth. See growth capacity

  • Management depth

    Number a buyer reads
    Named leaders for sales, delivery and finance, with tenure
    Next 12 months
    Hire or promote the missing seat. Give each a written number
What moves the multiple. Our operating view, not a benchmark.

When do I need a formal appraisal?

A planning estimate tells you where you stand, and the cards above show where to improve. It is not an appraisal. A tax filing, estate plan or partner dispute usually needs a credentialed appraiser. In a sale, the buyer sets the price, so test it with your advisers.

Credentials include the AICPA's Accredited in Business Valuation (ABV) and NACVA's Certified Valuation Analyst (CVA). Ask which standard the appraisal follows and what it will be used for. A court, the IRS or a lender may set its own requirements.

What to do this week

Five steps, each with an owner.

  1. CEO: write down normalized earnings for the last 12 months, with every personal cost and one-off removed.
  2. CFO or bookkeeper: confirm the monthly closes tie to the tax return. Fix any gap before a buyer finds it.
  3. COO: list your top 10 customers by revenue and compute the top customer's share.
  4. CEO: list every decision only you can make, and name the person who could make each one.
  5. Sales lead: pull leads, booked appointments and sold jobs by source for the last 90 days.

Where do I start?

If you plan to sell, raise money or add a partner in the next 1 to 5 years, the lead flow and retention cards are the ones most owners can move fastest. We work with private equity operators and owners on exactly that. See private equity portfolio growth, or run the growth constraint diagnostic to find the limit in your numbers.

Questions leaders ask

How do you value a small business?

Most use a multiple of seller's discretionary earnings, which is profit plus the owner's pay and personal costs. BizBuySell reported an average cash flow multiple of 2.7 in the second quarter of 2026, across 2,117 sales. Your multiple depends on your trade and risk.

What is the formula for valuing a company?

Normalized earnings times a multiple. For a company with $1 million of EBITDA and a 5x multiple, the value is $5 million. Example only. The multiple depends on size, trade, growth and risk, so use a range, not a point.

What multiple of EBITDA is a business worth?

GF Data reported an average 7.0x trailing 12-month adjusted EBITDA for private equity deals in the second quarter of 2026, with deals up to $250 million of enterprise value. Smaller firms usually sell at lower multiples.

How can I increase the value of my business?

Reduce what a buyer fears. Lower customer concentration, move decisions off the owner, add recurring revenue, keep clean monthly numbers, measure lead flow to the sale and build a management team that can run without you.

Do I need an appraiser to value my business?

For a planning estimate, no. A tax filing, estate plan or partner dispute usually needs one, such as an appraiser with the AICPA ABV or NACVA CVA credential. In a sale, test the price with your advisers. Rules vary, so ask them first.

SOURCES

Where’s the money leaking?

Pick one. Be honest.

Cite this article

Grigorchuk, T. (2026, November 8). How to Value a Business and Raise Its Worth. Megawebvision. https://megawebvision.com/insights/how-to-value-a-business

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