How much can you sell your business for? A realistic guide

You already have a number in your head.

Most owners do. It arrived somewhere between a conversation with a mate who sold his, something an accountant said in passing, and a calculation you did in your head once and never wrote down. You have probably not said it out loud, and you would rather not have it tested.

This is about that number: where it came from, what a buyer would make of it, and what moves it.

How do you work out what your business is worth?

The back of the envelope version takes ten minutes.

Start with your profit, then adjust it to show what the business really earns for an owner. Add back your own salary and any drawings, personal expenses running through the business, and genuine one-offs that will not repeat. That figure is what buyers of owner-operated businesses call seller's discretionary earnings, and it is usually higher than the profit on your tax return.

Then apply a multiple. Published guidance for small and medium businesses generally lands between 2 and 4 times for smaller owner-operated businesses, with manufacturing and business-to-business often higher and recurring-revenue businesses higher again.

So: adjusted earnings times multiple. That is the number, and it is a bracket rather than a price. our guide to valuation multiples sets out the bands and where they come from.

Why is the number in your head usually higher?

Three reasons, and none of them means you were wrong to think it.

You are valuing the work. You know what twenty years cost you. Buyers price future earnings, not past effort, and those are different things.

You are using revenue when they use profit. A $6 million business sounds like a $6 million business. It is worth a multiple of what it earns, not what it turns over.

You have counted things that leave with you. The relationships you hold personally, the pricing judgement nobody else has, the reason the best clients stay. Real value, and not transferable, which means a buyer will not pay for it.

That third one is the gap, and it is usually the largest single reason the number in your head and the number on the offer are different.

What do buyers scrutinise?

The AI-generated summary at the top of this search names six drivers of value, and the first is owner independence: whether the business can run if you walk away tomorrow. An Australian adviser on the same page puts it plainly, that a business running well without its owner is worth significantly more than one that depends on them.

The others are recurring revenue, customer diversification with no single client above roughly 10 to 15 per cent of sales, clean financials verified by an accountant, consistent margins, and a growth trend.

Read that list again as a buyer would. Only two of the six are about how much money the business makes. Four are about how reliably it will keep making it after you leave.

What would a buyer find in your business?

Four questions, and you can answer them this afternoon.

How long could this run properly if you were uncontactable? Not survive. Run properly. Quote work, price it, resolve the unusual problem, keep customers happy.

If you stepped away from winning new work, how fast does the pipeline dry up? Three months is a different business to twelve.

Do your customers deal with the business, or with you? Ring a long-standing client and ask who they think they buy from. The answer is worth more than any calculation.

How much of what the business is worth walks out the door with you? Pricing judgement, supplier relationships, the knowledge of why things are done a certain way.

If those answers were uncomfortable, that discomfort is the difference between your number and the offer.

What moves the number in one to three years?

The honest answer is that almost nothing moves it quickly, and a few things move it a long way given time.

Getting decisions out of yourself. Someone else with real authority to approve spending and price work, inside stated limits. This is the slowest and the largest.

Moving the relationships into the business. Named account managers, shared records, customers who know more than one person's name.

Reducing customer concentration. If three clients are most of your revenue, a buyer prices that risk whatever the profit says.

Cleaning the financials. Three to four years of accounts a stranger can read, with personal and business expenses properly separated.

Then letting it run. The evidence a buyer pays for is a period where the business performed while you were not central to it, and that has to accumulate. our guide to preparing a business for sale sets out the sequence quarter by quarter.

None of that is quick. All of it is doable in the two or three years most owners have before they seriously want out, and it is the difference between the bottom of a valuation band and the top.

What should you do with your number now?

Write it down. Then work out the adjusted earnings and the multiple, and see how far apart the two are.

If they are close, you are in better shape than most owners and the work is about protecting that.

If your number is higher, you have found something useful rather than something disappointing. The gap measures the distance between a business that produces money and a business someone else can own. It closes with work rather than with negotiation, and nothing about it reflects on what you built.

Then get a formal valuation before you act on any of it. A qualified valuer prices what a buyer will price, and an article cannot.

That's the work we walk owners through, and you can start it with a conversation.

Frequently asked questions