Business Valuation

Most owners come to me already wrong about what their business is worth. Not by a little. By a factor of two, sometimes three. And when I ask where the number came from, the answer is almost always the same: somebody on the internet told them an industry multiple. Here is the problem. A business valuation multiple by industry is a number buyers and lenders use as a starting point, calculated by dividing comparable sale prices by the seller's earnings to produce an SDE or EBIT

Valuing a business based on revenue means estimating its enterprise value by multiplying annual revenue by an industry-derived multiple, written as Revenue × Multiple = Enterprise Value.

The most expensive mistake I see business owners make before a sale has nothing to do with timing, pricing, or picking the wrong buyer. It is using the wrong earnings metric.

A confidential information memorandum (CIM) is a detailed document prepared by a business broker or M&A advisor to present a business for sale to qualified, pre-screened buyers. It covers financial performance, operations, market position, growth potential, and the overall story of the business in a format designed to help a serious buyer understand exactly what they would be acquiring.

Last year I sat across the table from a guy who built a $1.2 million revenue premium hair product company over 18 years. Good business. Solid customer base. Repeat revenue from service contracts. He told me he wanted $3.5 million for it. When I asked how he arrived at that number, he said his accountant mentioned that businesses sell for "five or six times earnings." That accountant was thinking of mid-market companies with professional management teams and $20 million in rev