You'd be hard-pressed to find a business owner who hasn't asked the question: “How much is my business worth?”
It’s a pretty important question! To be frank, it's the most crucial starting point for anyone contemplating a business sale.
But understanding your business's value isn't just about satisfying your curiosity or preparing to sell right away—it’s about equipping yourself with the knowledge to make the best decision for your future.
Why Start with a Valuation?
A professional business valuation is a comprehensive assessment that determines the fair market value of your business.
It takes into account your financial records, industry trends, growth potential, and even market conditions. In short, it provides an unbiased look at what your business might sell for today.
But why is this step so important?
Because knowing your value helps you decide whether it’s time to sell—or time to hold and improve. Without it, you’re navigating the sales process blindly.
What Is a Business Valuation, Really?
At its core, a valuation tells you how much your business is worth in today’s market. It’s conducted by professionals who analyze all the internal and external factors that potential buyers would consider.
Think of it as a reality check. It tells you where you stand and what potential buyers are likely willing to pay for your business.
How Does It Work?
The process begins with your financials. This includes reviewing your profit and loss statements, balance sheets, and other documents from the past 3 years.
A good valuation expert will also examine the broader market—are businesses in your industry selling for higher multiples right now? Are buyers flocking to your region?
Once this data is collected, they calculate your business’s earnings—commonly using methods like Seller's Discretionary Earnings (SDE) or adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
Then, a multiple is applied based on your industry, business size, and other factors. To understand more about how the multiple is determined, check out our article "What The Heck Is a Multiple? And How Can You Get a Higher One?"
Why Your Business's Value Matters
The real purpose of a valuation isn’t just to set a price—it’s to give you options.
If the valuation reveals your business is worth more than you expected, you might decide to sell sooner than planned.
On the other hand, if the valuation suggests a lower-than-anticipated number, it gives you the opportunity to make strategic changes to improve your value before listing the business.
Either way, you’re making decisions from a place of knowledge, not guesswork.
The Impact of Timing
Timing is everything when it comes to selling a business. We’ve seen too many owners wait too long, only to see their business decline in value due to external market changes or internal stagnation.
A valuation helps you understand where you are in your business's lifecycle. Are you nearing your peak? Or are you plateauing and at risk of decline?
Knowing this can help you avoid the regret of selling too late—or too early.
Did you know that waiting to sell a business at its peak will actually get you less money than if you sold before the peak?
It's true. Buyers don't want to buy companies that have already reached their maximum potential. They're looking for businesses that consistently improve year-over-year, but still have room to grow!
Avoid Common Misconceptions
One of the biggest myths we encounter is the belief that a business’s value is simply a multiple of its revenue. But as we always say: a business isn’t worth what it makes; it’s worth what it keeps.
Profitability, not revenue, is what matters to buyers. They’re not just looking at your annual sales—they’re evaluating your expenses, debts, and growth potential.
For instance, a business with $20 million in revenue might report $25 million in expenses. Most buyers wouldn't even think twice about acquiring a company like that, regardless of its impressive sales figures.
Another common misconception is that assets like equipment or inventory make up the bulk of your value. While these are important, they’re just pieces of the puzzle.
After all, when someone buys your business, they're not just buying your assets. What buyers are really purchasing is your business's ability to generate consistent income by using those assets.
If you want to avoid the traps that most business owners fall into, we encourage you to read our article Debunking 5 Common Myths About Selling Your Business.
What Happens After a Valuation?
Once you know your business’s value, the next step is deciding your course of action.
Sell Now: If the market is strong and your valuation meets or exceeds your expectations, selling now might be the right move.
Improve First: If your valuation falls short of where you want it to be, you might choose to take some time to make improvements that will ultimately increase your business's worth.
Improvements could mean solidifying a management team to reduce the business's dependence on you, the owner. Other strategies might be aimed at reducing customer concentration or expanding service offerings.
Keep in mind, however, that the biggest determinant of a company's valuation is profitability. So, the best way to give your valuation a boost is by driving revenue and reducing expenses.
Why Choose Professional Help?
Conducting a professional valuation is not a DIY job. For one thing, any serious buyer and just about every lender will typically require it.
Also, we’ve seen business owners attempt to value their companies, but the results are almost always inaccurate.
In our article "Why You're Probably Wrong About How Much Your Business is Worth, we explore how a staggering 98% of owners overvalue or undervalue their business, and teach you how to avoid making their critical mistakes.
At the end of the day, a professional valuation brings expertise and objectivity to the table. It also provides credibility when presenting your business to buyers.
Remember, the valuation is as much an art as it is a science. It’s not just based on a whim, nor is it based on a written rule... which is why you should have an expert.
The Bottom Line
Getting a valuation is the only way to truly understand your business's worth. Besides, once you have a number, you're able to make an informed decision about your company's future.
Whether you’re ready to sell now or years down the road, a valuation provides clarity and direction. It’s the compass that guides you through one of the most significant financial decisions of your life.
If you’re ready to take the first step, contact us today for a consultation. We’d love to help you understand your business’s worth—and your options for the future.
About Robbins Pellegrino: Robbins Pellegrino is a Florida-based business brokerage firm led by Chandler Robbins and Joe Pellegrino, Jr. that is committed to redefining industry standards. We focus on creating meaningful partnerships and ensuring successful business transitions for both buyers and sellers. For more information, visit us at www.robbinspellegrino.com or call (239) 360-6273
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