What Is My Business Actually Worth? The No-BS Guide for Owners with $3M–$50M in Revenue
What Is My Business Worth? A Nashville Owner’s Honest Guide to Business Valuation
I ask this question in some form in almost every conversation I have with a business owner. What do you think your business is worth?
The answers fall into three categories. Some owners have a number that is too low, built around book value or what their accountant mentioned once, completely ignoring what a buyer would actually pay for the future earnings of the business. Some owners have a number that is too high, built around a deal their brother-in-law did in 2021 at the peak of the market, or a multiple they read about in an article that was describing a different industry entirely. And some owners, the rarest ones, shrug and say they genuinely have no idea and they would like to know.
That last group tends to have the most productive conversations.
A lower middle market business is worth what a qualified buyer will pay for it in a competitive process. For businesses with $3M-$50M in revenue, that typically means 4x-9x EBITDA, with industry, size, revenue quality, and business quality determining where in that range you land. Book value is not your valuation. Your revenue is not your valuation. Your EBITDA, multiplied by the right multiple for your specific situation, is the starting point.
Here is how that actually gets calculated, what moves the number up and down, and how to find out what your business is worth today.
Key Takeaways
- The most common method for valuing lower middle market businesses is the EBITDA multiple, adjusted earnings multiplied by an industry and size-specific multiple.
- Businesses under $5M in revenue are often valued on SDE (Seller’s Discretionary Earnings) rather than EBITDA. Understanding which metric applies to you changes the outcome significantly.
- Book value, what your balance sheet says, is almost never what a buyer will pay. Buyers are buying future cash flows, not historical asset costs.
- The four factors that most reliably move your multiple up: recurring revenue, management team depth, low customer concentration, strong growth trajectory.
- A free business valuation from Icon Business Advisors gives you a realistic range based on current market data and your specific financials.
Why Book Value Is the Wrong Answer
Walk into almost any bank and ask how much your business is worth. They will tell you something related to your assets minus your liabilities, your book value. This number is relevant for borrowing purposes. It is completely irrelevant for selling purposes.
A buyer acquiring your business is not buying your desks and vehicles and accounts receivable. They are buying the right to receive the future cash flows your business generates. Those future cash flows are worth what they are worth regardless of what you paid for the assets that produce them.
A 20-year-old manufacturing business with $3M EBITDA and $8M in book value is not worth $8M. It is worth roughly $15M-$21M (5x-7x EBITDA), depending on the specific factors buyers evaluate. The fact that the machinery is old has almost nothing to do with that number, unless the old machinery means high capex replacement costs that will reduce future cash flows, in which case it shows up in the buyer’s financial model, not in the balance sheet.
This is why so many business owners are surprised, in both directions, when they get their first real valuation.
The Four Valuation Methods Buyers Use
EBITDA Multiple (most common for $5M+ revenue businesses). EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization, the standard proxy for operating cash flow. A buyer applies a multiple to your adjusted EBITDA to calculate enterprise value. For lower middle market businesses, that multiple ranges from roughly 4x to 9x depending on industry, size, and quality.
If your business generates $3M in adjusted EBITDA and buyers apply a 6x multiple, the enterprise value is $18M. Apply a 7x multiple and it is $21M. That $3M swing on the same earnings is why the work of improving your business quality and running the right process matters so much.
SDE Multiple (most common for owner-operated businesses under $5M revenue). SDE (Seller’s Discretionary Earnings) adds back the owner’s compensation, personal benefits, and any non-business expenses on top of EBITDA. It represents the total economic benefit available to a working owner-buyer. SDE multiples typically range from 2x-4x for businesses in this range, with the specific multiple driven by the same quality factors as EBITDA businesses.
[Not sure which metric applies to your business? Read: SDE vs EBITDA, Which Valuation Metric Applies]
Revenue Multiple (occasionally used for high-growth businesses). Some technology businesses, particularly those with SaaS models, are valued on revenue rather than EBITDA, because they are growing fast enough that current profitability understates future value. For most lower middle market businesses, revenue multiples are not the primary valuation method.
Asset-Based Valuation (used when earnings are very low or the business is being liquidated). If a business cannot support a reasonable EBITDA multiple, because it is losing money, has very thin margins, or is closing, buyers may value it based on the liquidation value of underlying assets. For healthy operating businesses, this method is rarely relevant.
The Five Factors That Move Your Number Up or Down
Two businesses in the same industry with identical EBITDA can sell at very different prices. The factors that drive that divergence are consistent and well-understood.
Recurring revenue. A business where a significant percentage of revenue comes from contracts, subscriptions, maintenance agreements, or other repeating arrangements commands a higher multiple than one that has to re-earn its revenue from scratch every year. Buyers pay for predictability. The more predictable your future revenue, the more they will pay for it.
Customer concentration. If one customer represents more than 20% of your revenue, buyers apply a risk discount of 15-35% to your valuation, or they restructure the deal with earnouts and holdbacks tied to that customer’s retention. Two businesses with identical EBITDA but different customer diversity profiles are worth genuinely different amounts.
[Read more: Customer Concentration, The Silent Deal Killer Sitting in Your Business Right Now]
Owner dependency. If your business cannot operate without you for 90 days, buyers price the key-person risk. Owner-dependent businesses typically receive 20-40% valuation discounts or deal structures that require significant transition and earnout involvement from the departing owner. The fix, building a management team that can operate independently, is not fast, but it is worth more than almost any other capital investment you can make before going to market.
[Read more: Owner-Dependent Business? Here Is How Much That Is Costing You at Exit]
Growth trajectory. A business growing at 15% annually is pricing in higher future value than one that has been flat for three years. Buyers model future cash flows, and growth creates a higher present value of those flows. This shows up directly in what buyers are willing to pay today.
Size. Larger businesses command higher multiples than smaller businesses in the same industry, not because they are proportionally more valuable, but because they attract a larger and more competitive buyer pool. Private equity firms with the most capital and the willingness to pay the highest prices often have minimum deal thresholds. Crossing those thresholds opens the bid to more buyers, which generates more competition, which drives better prices.
What Your Valuation Range Actually Looks Like
Here is a worked example. A business services company in Nashville, IT staffing, $8M in revenue, $1.6M in adjusted EBITDA, 40% recurring contract revenue, no customer over 15%, strong general manager in place running day-to-day operations.
Industry range for business services: 5x-8x EBITDA.
Size range for $1.6M EBITDA: toward the lower end of the multiple range (institutional PE typically prefers $3M+ EBITDA, so the buyer pool is somewhat constrained).
Quality adjustment: the recurring revenue and strong GM push toward the middle-to-upper end of the available range.
Realistic valuation range: $8M-$10.5M enterprise value, or roughly 5x-6.5x EBITDA.
If the owner spent 18 months building recurring revenue from 40% to 60% of the book and documenting the GM role properly, the same business in a better market position might achieve 6x-7x EBITDA, $9.6M-$11.2M. The additional $1M-$2M in enterprise value cost 18 months of intentional work and zero capital investment.
That is the math that makes exit planning one of the highest-return activities a business owner can engage in.
How to Find Out What Your Business Is Worth Today
There are three ways to get a business valuation.
A free preliminary valuation from an M&A advisor. This is the fastest path to a directionally accurate number. An experienced advisor can review your financials, industry, size, and key quality factors and give you a realistic range in a relatively short conversation. The limitation is that this is an estimate, not a formal appraisal.
A paid Toolkit valuation from Icon Business Advisors. For $3,500-$7,500 depending on complexity, Icon produces a full written valuation report covering adjusted EBITDA, industry multiple analysis, comparable transaction data, and a specific enterprise value range. This is the appropriate tool if you are making a decision, an exit, a partnership buyout, a financing event, that requires a defensible written opinion of value.
A full Quality of Earnings process. For businesses preparing to go to market in the $5M+ EBITDA range, a sell-side QoE conducted by an independent accounting firm provides the highest-quality EBITDA validation. Cost is $25K-$50K, and it typically returns a multiple of that investment in final sale price.
The free preliminary valuation is the logical starting point for most owners. It costs nothing, takes about 30 minutes, and gives you a foundation for planning. The link is below.
Frequently Asked Questions
How do I calculate what my business is worth?
Start with your adjusted EBITDA, your normalized operating earnings with legitimate add-backs for owner compensation, non-recurring items, and personal expenses. Then apply the appropriate industry multiple for your sector and size. The EBITDA Multiples by Industry guide covers current ranges in detail. For owner-operated businesses under $5M revenue, use SDE rather than EBITDA as the earnings base.
Does revenue determine what my business is worth?
Revenue is a factor but not the primary one. Two businesses with identical revenue but very different margins and EBITDA will trade at very different valuations. Buyers are paying for earnings and cash flow, not top-line revenue. Revenue multiples are occasionally used for high-growth SaaS businesses, but for most lower middle market companies, EBITDA is the relevant metric.
What makes my business worth more to a buyer?
Recurring revenue, low customer concentration, an independent management team, a strong growth trajectory, and documented systems and processes. These factors reduce buyer risk and increase the predictability of future cash flows, which directly translates into a higher multiple.
Is my business too small to sell to a private equity firm?
PE firms typically focus on businesses with $3M+ in EBITDA, though some lower middle market funds and independent sponsors operate at $1M-$3M EBITDA. Below $3M EBITDA, the more likely buyers are strategic acquirers and qualified individual buyers, which can still produce good outcomes with the right process.
How accurate are online business valuation calculators?
Not very. Online calculators apply generic industry multiples to surface-level financial inputs without accounting for the quality factors, customer concentration, owner dependency, growth rate, revenue type, that drive meaningful variance in actual transaction prices. They are useful for a very rough orientation but should not drive planning or pricing decisions.
Daniel Askew is the Founder and CEO of Icon Business Advisors, a Nashville, Tennessee M&A advisory firm serving lower middle market business owners in the $3M-$50M revenue range.
[Get Your Free Business Valuation], Icon delivers a realistic range based on your actual financials and current market data. No obligation.
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Complete Guide: Business Valuation Methods: How Lower Middle Market Companies Are Actually Valued
