Asking “What is my business is worth?” is a bit like reading a crystal ball
Why? Because a business doesn’t have one value — it has several.
If you’re weighing up a sale, whether that’s soon or somewhere down the track, the first step is deciding how much you want for it. But asking yourself “What is my business worth?” on its own won’t get you very far.
What matters more is working out why you want to sell, and what you’ll do afterwards. Do you need the proceeds to fund your next move — another business, retirement, a hobby, or just some time off? Or do you actually need to sell at all? If the cash isn’t essential, there’s a real case for holding the business under management and enjoying the income it throws off.
Your answers to those questions set one kind of value: what you want, or need, to walk away with.
The second value is what the market says it’s worth — and that takes a lot more digging. It also depends heavily on who’s buying. So let’s start with how small and medium businesses are typically valued.
How valuation actually works
It comes down to two things: the cash the business generates for you, and the risk to that continuing — or growing — under a new owner.
Working out the cash is the more mechanical part. It’s the proprietor’s earnings before interest, tax, depreciation and amortisation (PEBITDA), averaged over three years, before one owner’s wages, super and discretionary spending — sometimes called the “maintainable adjusted net profit”. Straightforward enough, as long as the financials are clean and current.
The risk side is far messier: industry risk, how dependent the business is on you personally, location and lease terms, economic conditions, and anything else that could trip up a new owner. A due diligence exercise run from the buyer’s perspective is the best way to surface and weigh these risks. In the end, a business is worth whatever a buyer is prepared to pay for it.
When I run a business ready-for-sale assessment, that’s essentially what I’m doing — due diligence from the buyer’s side, with a hard look at the risk.
Want to know more about how I do this? Book a no-obligation call and let’s talk it through.
Know your starting point, and let’s map out a roadmap to the exit options you want.
Why a business has more than one value
Who’s actually going to buy your business? Broadly, there are three types of buyer.
Happy working in the business day to day, and can picture themselves doing what you do now. They like the lifestyle it offers. Most common for businesses selling up to around $500,000.
Focused squarely on the numbers and chasing a quick return — often buy, build and sell within three to five years. Expect hard negotiating on price to protect that return.
Sees growth potential others — sometimes even you — might miss: your IP, perhaps, or a client base they can cross-sell into (think Microsoft buying LinkedIn). Could be a competitor, a complementary business, or an interstate or international player after a foothold. Often pays the most, but can be the hardest to find.
What a business is worth, in practice
A business is worth whatever a buyer is prepared to pay for it. From my years as a business broker, here’s how that plays out in the real world.
- You’ve got a figure in your head for what you think it’s worth, and what you need to walk away with.
- A broker or valuer applies PEBITDA, or another recognised method, backed by market experience.
- The buyer has their own number, based on what they’re willing to pay.
- The buyer’s accountant — or whoever runs due diligence — lands on a value from the financials, often with little market context.
- If finance is involved, the bank or lender puts their own value on it, and that can go either way.
- If it’s a franchise, the franchisor will have an opinion too — often an inflated one.
See what I mean? Getting a sale over the line means the seller, the buyer, the buyer’s accountant and the lender (if there is one) all landing on the same number — and every one of them sees it differently.
As the owner, you need a credible starting point for value. PEBITDA plus market experience is a solid way to begin, and from there the job is making the business more valuable and more saleable. But before any of that, it’s worth asking honestly whether selling is even the right move for you and the business.
That’s where I come in. My business ready-for-sale assessment draws on my years as a broker to get you started on a roadmap for growing and exiting the business.
Take action
So, if you are asking yourself “What is my business worth?” then get a free saleability score and tailored recommendations — it takes three or four minutes and hands you a customised report, no cost.
Prefer to talk it through? Book a no-obligation call.
