EP #4: Calculating Your Business’s True Worth

What’s your business really worth? If you’re like most entrepreneurs, the answer in your head might be dramatically different from marketplace reality.

Cash flow drives business value—this fundamental truth anchors our deep dive into valuation methodologies. But as we explore with Business broker Dustin Zeher, numerous factors beyond profit statements determine what buyers will pay. From tangible assets and inventory to risk assessment and industry positioning, valuing a business requires sophisticated analysis rather than simple formulas.

The episode demystifies technical aspects of valuation that confuse even savvy business owners. We distinguish between SDE (Seller’s Discretionary Earnings) multiples that typically range from 2-3.5x for individual buyers versus EBITDA multiples of 3-5x applied in corporate acquisitions. This distinction alone explains why many owners misunderstand their company’s market value.

Perhaps most enlightening is our exploration of the recasting process—where financial statements get adjusted to reveal a business’s true earning potential. From normalizing owner compensation to adding back personal expenses incorrectly categorized as business costs, recasting provides the clearest picture of what a new owner might actually earn. We also examine how real estate considerations can dramatically impact valuation, potentially doubling the capital requirements for potential buyers.

Whether you’re years from selling or actively planning an exit, understanding valuation fundamentals helps you make strategic decisions that maximize long-term value. Give this episode a listen, then share your valuation questions or experiences in the comments below. Your business journey doesn’t end with valuation—it’s just the beginning of your next opportunity on the horizon.

Call Horizon Business Brokers at 703-910-7384 or visit horizonbrokers.com to begin your exit planning journey today.