finance
Business Valuation
Estimating what the business is worth - typically as a multiple of EBITDA or revenue.
Definition
Business valuation estimates the market value of the business, usually for sale, investment, or partnership purposes. Common methods: EBITDA multiple (most common for established service businesses - typically 3-7x adjusted EBITDA), revenue multiple (for high-growth SaaS - 3-10x ARR), discounted cash flow (sophisticated buyers), and asset-based (for asset-heavy businesses). Adjusted EBITDA strips out owner-specific items (above-market owner salary, personal expenses) to show what the business would generate under new ownership. Valuation is part math, part market - buyers ultimately set the price.
In your business
- →Track adjusted EBITDA, not just reported EBITDA - it's what buyers will value
- →Reduce owner dependency before selling - dependent businesses sell for 2-3x lower multiples
- →Get a baseline valuation 2-3 years before any sale - gives time to fix what reduces value