• Valuation
  • For business owners
  • September 2026
  • 12 min read

Business valuation

How Much Is My Business Worth?

What buyers actually pay, and why valuation, deal structure and seller proceeds are not the same thing.

If you’re thinking about selling your business, you can probably find an industry multiple online in a few minutes.

That doesn’t necessarily tell you what your business is worth.

A useful valuation has to answer harder questions: What does the business actually earn after reasonable adjustments? How transferable are those earnings to a new owner? What have buyers paid for genuinely comparable companies? And what risks or strengths are specific to your business?

Even then, there is an important distinction:

A valuation is not an offer. An offer is not necessarily cash at closing. And cash at closing is not the same as what you ultimately keep.

Understanding those differences can be more useful than finding another industry multiple.

The short answer

For many profitable privately held businesses, a reasonable starting framework is:

Normalized earnings × an appropriate market multiple = an indication of enterprise value

But both sides of that equation require judgment.

The earnings need to reflect the economics a buyer reasonably expects after taking ownership. The multiple needs to reflect relevant market evidence as well as the company’s size, industry, risk, growth and overall quality.

Business valuation guidance from the IRS similarly recognizes that no single factor determines the value of a closely held business. Relevant considerations can include earning capacity, financial condition, industry conditions, goodwill, comparable companies, risk and other company-specific factors.

That is why a credible valuation is often more useful as a defensible range with clearly stated assumptions than as a precise number presented without context.

From valuation to proceeds

  1. Valuation
  2. Offer
  3. Deal structure
  4. Closing proceeds
These are not the same number.

Start with the earnings a buyer is likely to accept

Consider a hypothetical business with:

  • $5 million of revenue
  • $850,000 of reported EBITDA
  • $150,000 of proposed adjustments

The owner might begin with:

$850,000 + $150,000 = $1 million of adjusted EBITDA

Suppose, purely for illustration, the owner then applies a 5x multiple:

$1 million × 5 = $5 million

But a buyer is likely to examine the $1 million before debating the 5x.

Suppose $50,000 of the proposed adjustments represents an expense the buyer believes will continue after closing.

The buyer may instead underwrite:

$950,000 of normalized EBITDA.

Using the same assumed 5x multiple solely to illustrate the math, that $50,000 disagreement changes the indicated enterprise value by:

$250,000.

This is one reason the quality of an earnings calculation matters so much. A seemingly modest disagreement about normalized earnings can become much larger once a valuation multiple is applied. (For a closer look at how SDE and adjusted EBITDA are calculated and where buyers push back on add-backs, see How to Sell a Service Business in 2026.)

A multiple is a benchmark, not the answer

Private-market transaction data can be useful because it provides evidence of what buyers have actually been willing to pay.

But the comparable companies need to be genuinely comparable.

Industry matters. So does size.

GF Data’s analysis of 118 private-equity-sponsored transactions between $1 million and $25 million of total enterprise value during the first half of 2025 found average EBITDA multiples of approximately 5.5x for $1 million to $5 million transactions and 5.6x for $5 million to $10 million transactions. Transactions in the $10 million to $25 million tier averaged approximately 6.2x to 6.7x.

Those figures should not be treated as valuation multiples for every privately held small business. GF Data’s dataset covers PE-sponsored transactions, which can differ substantially from smaller owner-operated businesses and other types of acquisitions.

The useful lesson is narrower:

Company size and the type of transaction can materially affect observed market multiples.

A business should not be valued simply by finding an industry average and applying it mechanically.

The better question is:

Which transactions are actually comparable to this business, and what would cause a buyer to value this company differently?

Why the same earnings can produce different valuations

Imagine two businesses each generating $1 million of normalized EBITDA.

The first has a management team capable of operating without the owner, a diversified customer base, consistent financial reporting and several years of stable performance.

The second depends heavily on the owner, has one customer representing a substantial portion of revenue and requires significant financial cleanup before a buyer can confidently understand historical earnings.

A buyer is unlikely to view those as equivalent assets.

There is no universal discount for customer concentration or fixed premium for management depth.

Instead, those characteristics affect a buyer’s confidence that today’s earnings will continue after ownership changes.

The multiple is therefore partly a price placed on the quality, risk and transferability of the earnings underneath it.

The four numbers owners should not confuse

This is where valuation becomes particularly important for an owner considering a sale.

Several numbers may sound similar but mean very different things.

1. Estimated valuation

This is an estimate or opinion of what the business may be worth based on its financial performance, market evidence and company-specific characteristics.

It is not an offer.

2. Enterprise value

In many M&A transactions, enterprise value represents the negotiated value attributed to the operating business before certain transaction-specific adjustments.

When someone says a business is being valued at “5x EBITDA,” enterprise value is often the concept being discussed.

But enterprise value is not necessarily the amount deposited into the seller’s bank account.

3. Purchase consideration

An offer also has a structure.

Depending on the transaction, consideration could include some combination of:

  • cash at closing
  • a seller note
  • an earnout
  • rollover equity
  • other contingent consideration

Two offers with identical headline values can therefore have very different economics.

4. Seller proceeds

What the seller ultimately receives depends on the actual purchase agreement and transaction structure.

Depending on the deal, the calculation can include adjustments for cash, indebtedness, transaction expenses and working capital. Taxes, professional fees and other seller-level expenses can further affect what the owner ultimately keeps.

This is why asking only “What is my business worth?” eventually becomes insufficient.

The better question becomes:

“What would a realistic transaction look like, and what would I actually receive?”

Enterprise value is not necessarily the seller’s check

Suppose, purely as an illustration, a buyer agrees to a $5 million enterprise value in a transaction structured on a cash-free/debt-free basis with a normalized level of working capital.

An owner should not automatically assume that means $5 million of cash proceeds.

A simplified purchase-price bridge might look like:

  • Enterprise value
  • + cash included for the seller’s benefit under the agreement
  • − indebtedness
  • − transaction expenses included in the purchase-price calculation
  • +/− working-capital adjustment
  • = equity purchase price

The precise calculation varies by transaction.

Some transactions use different definitions, adjustments and structures. The purchase agreement controls.

The point is not that every transaction follows one formula. It is that enterprise value and seller proceeds are different concepts, and an owner should understand the bridge between them before comparing offers.

Why working capital matters

Working capital is one area where the difference between a headline valuation and closing economics can become tangible.

In many acquisitions, the buyer expects the business to be delivered with an agreed level of working capital sufficient to operate in the ordinary course.

Suppose the parties establish a working-capital target.

If closing working capital is below that target, the agreement may provide for a downward purchase-price adjustment. If it is above the target, the agreement may provide for an upward adjustment.

The precise definitions and mechanics are negotiated and can vary significantly by business and transaction.

For an owner, the practical lesson is straightforward:

Understand the working-capital assumptions before treating a headline purchase price as expected proceeds.

The highest headline offer is not automatically the best offer

Imagine receiving these two hypothetical proposals.

Buyer A

  • $5.25 million headline value
  • $4.0 million cash at closing
  • $750,000 seller note
  • $500,000 earnout

Buyer B

  • $4.9 million headline value
  • $4.7 million cash at closing
  • $200,000 seller note

Which is better?

There isn’t enough information to answer.

Buyer A offers $350,000 more headline value.

Buyer B offers $700,000 more cash at closing.

To compare them properly, an owner would also need to understand the seller note’s interest rate, maturity, security and subordination; the earnout’s conditions and likelihood of payment; any financing contingencies; the buyer’s ability to close; working-capital treatment; rollover-equity terms, if applicable; and other material provisions.

This is a real economic tradeoff, not simply a question of which number is larger.

Actual executed letters of intent collected by Axial illustrate this point. Transactions can contain materially different combinations of cash at closing, seller financing, earnouts and rollover equity.

For an owner, evaluating an offer therefore requires answering both:

How much am I being offered?

and

How, when and under what conditions will I receive it?

A worked example: from valuation to seller proceeds

Return to our hypothetical company.

The owner initially calculates:

$1 million of adjusted EBITDA

After reviewing the proposed adjustments, assume a buyer instead accepts:

$950,000 of normalized EBITDA

For illustration only, assume the parties ultimately negotiate:

$5 million of enterprise value

That still isn’t the end of the calculation.

Suppose the transaction’s negotiated purchase-price mechanics produce the following simplified bridge:

Hypothetical, simplified bridge

From enterprise value to equity purchase price

  1. Start

    Enterprise value: $5,000,000

  2. Plus

    Cash included for the seller’s benefit: $150,000

  3. Less

    Indebtedness: $400,000

  4. Less

    Transaction expenses included in the calculation: $100,000

  5. Less

    Working-capital adjustment: $50,000

  6. Result

    Illustrative equity purchase price: $4,600,000

This example is intentionally simplified and is not intended to represent how every small-business transaction is structured.

Taxes, additional professional expenses, escrows, holdbacks and other transaction-specific items may further affect the timing or amount of seller proceeds.

And if part of the consideration consists of a seller note, earnout or rollover equity rather than cash, the amount received at closing can differ further.

The example demonstrates why these four statements are not interchangeable:

  • “My business is worth $5 million.”
  • “I received a $5 million offer.”
  • “I will receive $5 million at closing.”
  • “I will keep $5 million.”

They can describe very different economic outcomes.

Different buyers can value the same company differently

Valuation does not happen in a vacuum.

A financial buyer may evaluate a business based partly on the return it expects to earn on invested capital and the financing available to support the acquisition.

A strategic buyer may identify benefits from combining the company with an existing operation.

A private equity firm evaluating an add-on acquisition may view a company differently from a buyer evaluating the same company as a standalone platform.

GF Data’s H1 2025 analysis, for example, found differences between add-on and platform transactions within portions of its PE-sponsored small-deal dataset.

That does not mean an add-on or strategic buyer will automatically pay more.

It means that buyer identity, existing operations and acquisition rationale can affect how a particular buyer evaluates a business.

This is one reason a valuation performed before a sale and the outcome of an actual competitive sale process are not necessarily the same thing.

A valuation can change during diligence

An initial offer is generally based on information available before the buyer has completed full diligence.

If earnings withstand scrutiny and the business performs as expected, the original valuation assumptions may hold.

If diligence shows that normalized earnings are lower than expected, a material customer relationship is at risk, working capital is insufficient or another important assumption was incorrect, the economics can change.

The buyer may seek to renegotiate the transaction or decide not to proceed.

That is why owners benefit from pressure-testing their earnings before a buyer does it for them.

An aggressively adjusted EBITDA number is not particularly valuable if the adjustments cannot be supported during diligence.

A defensible earnings number can be more useful than a larger one that does not survive scrutiny.

What should a credible valuation actually tell you?

A useful valuation should do more than produce a number.

An owner should be able to understand:

  • What earnings figure is being used and why?
  • Which adjustments are being made?
  • What market evidence supports the valuation?
  • How comparable are the transactions being used?
  • Which characteristics could move the business toward the upper or lower end of the range?
  • Which types of buyers are realistic?
  • Which assumptions could be challenged during diligence?
  • Does the estimate represent enterprise value, equity value or something else?
  • How could transaction structure affect what the seller ultimately receives?

If those questions cannot be answered, the precision of the final number may not be particularly useful. The same questions are worth asking any firm that presents a valuation as part of a pitch for your business; see How to Choose a Business Broker to Sell Your Business.

Where online valuation tools fit

An online estimator can be useful for establishing an initial frame of reference.

It can help an owner understand whether a business might broadly fall into one value range rather than another and introduce some of the variables buyers consider.

It cannot know the business the way a buyer eventually will.

An automated estimate cannot fully assess the quality of customer relationships, whether proposed adjustments will survive diligence, the owner’s actual role, employee dynamics, the quality of financial reporting, current buyer appetite or whether a particular acquirer has a strategic reason to pursue the company.

SMB Exit Partners therefore treats its online valuation estimator as a starting point, not a valuation opinion.

Try the free valuation estimator →

The question behind “What is my business worth?”

For an owner who is simply curious, an approximate valuation range may be enough.

For an owner considering a sale, there are really several questions:

  • What is a defensible value for the business today?
  • What might actual buyers be willing to pay?
  • What terms might accompany that price?
  • Which assumptions could change during diligence?
  • And what might I ultimately receive if the transaction closes?

Those questions are harder than multiplying EBITDA by an industry average.

They are also much closer to what matters when deciding whether, when and how to sell.

Considering a sale?

SMB Exit Partners advises owners of privately held small businesses nationwide on valuation, sale preparation, confidential buyer outreach, negotiations and the transaction process through closing.

If you are considering a sale, we can help you think through a defensible valuation range, the buyers likely to be relevant and what a potential transaction could look like before you decide whether to move forward.

Request a confidential valuation discussion

Sources & Methodology

This guide is educational and is not a formal appraisal, fairness opinion, tax opinion or legal advice. Examples are hypothetical and simplified to explain transaction concepts.

Market and valuation principles referenced in this guide draw primarily from:

Market statistics should be interpreted in the context of the underlying dataset and should not be applied mechanically to an individual business.