How do I know what my business is worth?

Business Sales

You get a market estimate, not a guarantee, built from what the business actually earns its owner, not what it bills in revenue. A licensed broker or an appropriately qualified valuer looks at your real profit, applies a multiple that reflects your industry and how dependent the business is on you personally, then adds the value of any plant, stock or assets included in the sale. Note the term: under Queensland's Property Occupations Act 2014, only a valuer can give a formal valuation. A broker gives a market estimate, sometimes called a Broker's Opinion of Value, an informed, evidence-based read on what a business is likely to sell for, not a legal valuation.

How the number gets built, at real numbers

Take an electrical contracting business in southeast Queensland turning over $1.2 million a year, with the owner drawing $250,000 in seller's discretionary earnings, SDE, the total benefit the owner gets from the business each year: wage, profit, and any personal costs run through the business, added together. Small Australian trade businesses typically sell in a range of roughly 2.5 to 3 times SDE, so that $250,000 translates to a market estimate in the order of $625,000 to $750,000 for the business itself, before adding the value of vehicles, tools and stock included in the sale, which for a well-equipped trade business can add another $50,000 to $90,000 on top.

Where the bigger numbers come from

The multiple, not just the profit figure, is what actually moves the number, and it moves further than most owners expect. A trade business earning $700,000 to $900,000 profit, with documented systems, a second-in-charge who could run it without the owner, and a client base no single customer dominates, sits toward the top of the trade multiple range, 3 to 3.5 times. At that level, the same mechanics that produced $625,000 to $750,000 above produce a market estimate in the $2.1 million to $3.15 million range. That's not a different formula, it's the same formula applied to a business built to run without its owner, which is exactly what a buyer is actually paying for.

Once the business is being professionally managed, the method changes too

For a larger, professionally managed business, one with a general manager and a leadership team running day-to-day operations rather than the owner personally, buyers and brokers typically move from SDE to an EBITDA multiple instead, because the owner's personal time is no longer the thing being valued. Take a business turning over roughly $2 million a year with $500,000 in EBITDA. Businesses in that $250,000 to $1 million EBITDA band typically sell at 2.5 to 4 times EBITDA, putting a market estimate in the $1.25 million to $2 million range, again before assets.

Why the number moves more than owners expect

Two businesses with identical revenue can have genuinely different market estimates, sometimes by a factor of two or more, because of things that don't show up on a P&L: how concentrated the client base is, how much is written down versus kept in the owner's head, and whether a buyer's accountant will find the numbers match what's being claimed. This is exactly why getting a read on the business before you need to sell, not after you've decided to, makes such a difference to the eventual number. Owners who prepare for business sales 12 to 24 months out consistently land toward the higher end of their range, because there's time to fix the things that were dragging the multiple down.

The examples above are general illustrations of how a market estimate gets built, not a valuation or estimate of any specific business. An actual market estimate needs your real financials, not an example.

The one-line version

Your business is worth what a buyer will actually pay for what it earns, not what it bills, and the multiple applied to that number depends far more on how little the business needs you than most owners assume. A proper market estimate accounts for that. A generic multiple online doesn't.