What Is My Business Worth? How Buyers Actually Price a Small Business

Start with how buyers think

A buyer is buying future cash flow. They want to know three things:

1. How much money does this business really make for its owner?

2. How likely is that money to keep coming after you leave?

3. What will they have to spend in cash, time, and risk to keep it going?

That's also why a business can be worth less than its revenue. Buyers pay for profit they believe will continue, not for sales. A business with strong revenue but thin margins may be worth less than a smaller, more profitable one.

The three common approaches

The U.S. Small Business Administration lists three common valuation methods [1]:

• Income approach. Looks at projected revenue and accounts for potential risks.
• Market approach. Compares your business to similar businesses that have recently sold.
• Assets approach. Subtracts total business liabilities from the total value of all assets.

For most owner-run businesses, the income and market views matter most. The asset view tends to matter more for businesses with heavy equipment, real estate, or weak profits.

The number buyers look at first: owner earnings

For smaller businesses, buyers usually start with seller's discretionary earnings (SDE):

SDE = profit + the owner's salary and benefits + one-time or personal costs run through the business + non-cash items like depreciation

Tax returns are built to lower taxable profit, so they often understate what the business earns for an owner. SDE adds those items back so a buyer can see the real picture. Each add-back needs documentation, because buyers and lenders will check.

Larger businesses with a management team in place are often valued on EBITDA (earnings before interest, taxes, depreciation, and amortization). The idea is the same: a cleaner view of operating profit.

A business is often priced as a multiple of SDE or EBITDA, and the multiple depends on industry and risk. Typical multiples vary too widely to quote responsibly without knowing your business.

What pushes value up or down

Usually helps

• Steady or growing revenue over several years
• Recurring revenue, such as service contracts or subscriptions
• A spread-out customer base, not one or two big accounts
• Trained employees who stay, and a manager who can run the day-to-day
• Clean books that match your tax returns
• Transferable licenses, leases, and contracts

Usually hurts

• Owner dependence. If customers only call you, a buyer is buying a job, not a business.
• Customer concentration. Losing one big client could change everything.
• Messy or mixed records, with personal and business expenses tangled together.
• A short or uncertain lease on your location.
• Deferred maintenance on equipment or vehicles.

Most of these can be improved over one to three years, which is why many owners start the valuation conversation well before they plan to sell. See preparing a business for sale and the financial statements buyers want. If you'd rather your team not know you're asking, see selling a business confidentially.

If your business owns its building

Real estate is valued separately from the business. A buyer might buy both, or buy the business and lease the building from you. Keeping them separate, in your head and on paper, gives you more options. See selling a business with real estate.

Tax and New Jersey details that affect the sale

The IRS looks at each asset. When a business's assets are sold, the IRS generally treats each asset as sold separately to determine gain or loss, and the price is allocated among asset classes using the residual method [2]. That allocation affects your taxes, so bring your CPA in before you agree on it.

The NJ bulk sale notice. When business assets are sold in bulk in New Jersey, the purchaser notifies the Division of Taxation by filing Form C-9600 with a copy of the contract at least 10 business days before closing. Covered assets can include inventory, real property, and goodwill [3]. Your attorney will handle it, but build it into your timeline.

A local angle: Morris County owners

In Morristown, the county seat, many businesses serve professional and health care clients. Buyers of a practice, clinic, or service firm in that orbit look closely at referral sources, staff, and licensing. In established towns like Pompton Plains, many long-time owners are planning retirement and succession at the same time. Starting early leaves more choices: a sale to an employee, a competitor, or an outside buyer.

How to get a realistic starting number

1. Pull three years of financials and tax returns.

2. List your add-backs (your salary, perks, one-time costs) with proof.

3. Note your risks honestly: big customers, key employees, lease terms.

4. Separate any real estate from the business.

5. Get a preliminary valuation range, then decide whether to sell now, prepare, or wait.

General information, not legal, tax, or financial advice.