What Is My Business Worth Before I Have an Offer?

What your profit figure has to be called first

The two labels a small-company profit figure can carry, seller's discretionary earnings and EBITDA, differ on exactly one thing that matters to you right now: what happens to the owner's compensation.

Under the IBBA glossary definition, discretionary earnings is earnings before "income taxes, non-operating income and expenses, nonrecurring income and expenses" and other listed items, and it includes "one owner's entire compensation" plus personal expenses the business paid on the owner's behalf. Your salary, your benefits, your vehicle: all of it stays in the figure. The premise is that the buyer is one person who will step into your chair and take that whole stream home.

EBITDA, by the same glossary, is "earnings of a business prior to interest (expense or income), income taxes, depreciation and amortization expenses." It says nothing about your pay, so your pay stays wherever the books put it. Adjusted EBITDA goes one step further and replaces the owner's or officer's compensation and benefits with market-rate compensation for the functions that still have to be covered after you leave. The premise here is that the buyer will hire someone to do your job and wants to know what's left after that hire is paid.

The consequence follows on its own. The same company, the same year, the same books produce two different figures, and the gap between them is roughly what it costs to replace you. If you run sales, manage the shop floor, and do the books yourself, that gap is large. If you've already hired a general manager and pay yourself a market salary, it's small. Either way, the figure you're holding belongs to one of these two families, and which one decides what you may compare it against. The full comparison of the two measures is at /ebitda-vs-sde/; for this article, you only need to know which one your number is.

If your number is revenue, it's neither. Valuation, in the IBBA's phrasing, estimates "the economic value of an owner's interest in a business," and revenue reports nothing about margin, what the owner costs, what capital the business needs, or how risky its income is. Two companies with identical sales and very different profit are not worth the same, so we won't give you a revenue multiple.

Two conditions ride along with any figure you label. The value is of a specific interest — the whole company, or your share of it — and it holds as of a specific date, what the glossary calls the valuation date: "the specific point in time as of which the valuator's opinion of value applies." Last year's profit describes last year. That doesn't disqualify it, but a buyer looking next spring will be looking at a different date. The CFA Institute's reading on private-company valuation adds the practical point that private financial reporting tends to be thinner than public reporting, so earnings usually need some adjustment before they can serve as the baseline for anything. Your labeled figure is a starting point with a name attached, not a finished input.

So your number now has a name. What it can honestly be compared against turns out to depend on that name.

What the IBBA Q2 2026 value bands actually report

The IBBA and M&A Source Market Pulse survey for the second quarter of 2026 reports average multiples by deal-size band. Its "Business Value — Multiples" chart for Q2 2026 reads:

The important line on that chart is the footnote. It says the segments below $2 million are reflected as multiples of seller's discretionary earnings, and the segments from $2 million through $50 million are reflected as multiples of EBITDA. The chart changes what it's measuring halfway down.

That's why the labeling in the last section wasn't a semantic exercise. Every multiple on this chart carries an implied earnings definition with it. The 3.1x belongs to SDE and only SDE; the 4.0x belongs to EBITDA and only EBITDA. If you take 4.0x because it's the biggest number that looks reachable and apply it to a figure that still contains your entire compensation, you haven't made a small error of precision. You've multiplied a number measured one way by a ratio built on a number measured another way, and the chart itself tells you so.

The rows also come with limits that a one-page survey summary can't remove. These are averages across broad bands. The sheet doesn't publish how many deals sat behind each average, how far they spread around it, which transactions they were, or how anyone should adjust the average toward a company with particular characteristics. A 3.1x average means some deals in that band closed well above 3.1x and some well below, and the sheet doesn't tell you which kind yours resembles.

Those aren't defects peculiar to this chart. Every published comparison figure comes from some population, measured some way, and weighted somehow, and the honest ones say so. BizBuySell's business-value calculator is a useful contrast because its methodology note is candid: its estimate reflects current and recent asking prices, "not what those businesses ultimately sold for," and the way it weights its factors "is inherently somewhat subjective." Asking prices are what sellers hoped for. Survey averages of closed deals are what buyers actually paid, at least as respondents reported them. Those are different populations, and a number from one can't be checked against a number from the other. Whenever you meet a multiple anywhere — a broker's rule of thumb, a trade-association article, a calculator — the questions that make it usable are the same: what earnings figure sits under it, what price population it came from, and how it was weighted.

The five rows are readable and their limits are stated. That's enough to run the one thing this reference genuinely supports.

When your labeled figure and the band you borrowed from disagree

Take your labeled figure. Find the row whose denominator matches its label. Multiply. Then look at where the result lands and ask whether it sits inside the band you borrowed the multiple from.

If it does, the numbers agree with each other. If it doesn't, the comparison needs another pass. That's the whole check, and it's the honest early output of this exercise: agreement or disagreement, not a value.

The reason the check tells you anything is a circularity built into the chart. The bands are organized by enterprise value, which the IBBA glossary describes as a measure of total company value including market capitalization and debt as well as balance-sheet cash — in other words, by the very thing you're trying to estimate. To pick a multiple, you have to guess which size band your company belongs in, and that guess partly presumes the answer. Agreement, then, is weak confirmation: it means the guess and the result don't contradict each other. Disagreement is real information. It means the guess was wrong, the label was wrong, or the chart isn't the right comparison for you.

There are two ways the check fails, and they mean different things.

The first is a label mismatch: an SDE figure multiplied by an EBITDA-band multiple, or the reverse. The CFA Institute's material on price and enterprise-value multiples explains why this is a category error rather than a rounding problem. A multiple is a ratio, and its two halves have to describe the same thing: price multiples relate a market price to a per-share measure, while enterprise-value multiples relate all sources of capital to a whole-company measure such as EBITDA, sales, or operating cash flow. Swap the denominator and the ratio no longer describes anything. The Market Pulse chart uses enterprise-value bands throughout, so the numerator is consistent; what changes at $2 million is the denominator, and your figure has to change with it. A figure that contains your full compensation can't borrow 4.0x. To use that row you'd first have to convert it to adjusted EBITDA by taking out your pay and putting a market-rate replacement in, which is a different and smaller number.

The second is a band mismatch: the result lands in a neighboring segment from the one whose multiple you used. The chart's own edges show how narrow the agreement zone is. Divide the $1 million and $2 million boundaries by 3.1 and you get the SDE figures that row can hold together, roughly $323,000 to $645,000. That's our arithmetic on the chart's numbers, not a statement about any company. An SDE figure below the low end produces a result under $1 million, which means it belonged in the 2.8x row. A figure above the high end produces a result over $2 million, where the chart stops measuring SDE at all. In either case the band you borrowed from wasn't the band your company sits in, and because the bands describe different populations of deals, that suggests your comparison group may be wrong, not merely that your multiple was a tenth too high.

What do you do with a failed check? Try the adjacent band and see whether that one agrees with itself. Re-examine the label, especially if the result landed near the $2 million line, because crossing it means changing denominators, not just rows. And if neither fix produces agreement, treat that as a sign that a survey average of market-wide deals may not be the right kind of evidence for your company at all. The IBBA's own glossary notes that a multiple may estimate value but is often itself an outgrowth of valuation work, and that the market approach requires comparison with similar businesses that have actually sold. When the survey band won't hold your figure, the question becomes which approach fits, and how the income, market, and asset approaches differ and why their results diverge is the subject of /business-valuation-methods/.

What you end up with, when the check passes, is a range. We'd argue that's the honest product rather than a disappointing one. The International Valuation Standards Council's paper on value uncertainty makes the point directly: "different reasonable methods, data, and assumptions" can lead to different conclusions, and even careful valuation "may yield a range of credible outcomes." More data doesn't collapse a range to a point. It tells you where the range's edges come from.

That's also the answer to the shortcut everyone hears: isn't a business just worth about three times profit? The question can't be answered until "profit" is labeled, because three times SDE and three times adjusted EBITDA are different amounts for the same company, and the chart above shows the average multiple itself moving from 2.0x to 5.8x with deal size. Revenue Ruling 59-60, reproduced in an IRS valuation job aid and written for federal estate-and-gift-tax purposes, put it plainly decades ago: no general formula fits all closely held companies. We're not going to replace three-times with a better multiplier. No single one survives the label question.

Your range now agrees with itself. The next question is what could reasonably move it.

Which assumptions widen the range, and which just leave it unknown

The instinct at this point is to tighten the range, and the wrong way to do that is to put a percentage above and below a number you like and call the result endpoints. A range's edges have to come from somewhere. The IVSC paper names the three places uncertainty actually comes from — limits in the data, constraints in the model, and sensitivity to assumptions — and describes a credible range as the result of reasonable methods and inputs that genuinely differ, made understandable by saying which ones.

The clearest public inventory of what a fast estimate is asking you to assert is CalcXML's business-valuation calculator. Its inputs are annual EBITDA, excess owner compensation, expected earnings growth, how long earnings are expected to continue, business and industry risk, and a lack-of-marketability adjustment. The page describes its output as a present-value calculation, says the result is "based on information and assumptions provided by you," and tells you not to treat it as your only source of information. We'd take that disclaimer at face value, because reading down the list, the inputs sort into two very different kinds.

Excess owner compensation you can answer from your own records. It's the same question the first section asked, approached from the other side: how much of what you pay yourself exceeds what a market-rate replacement would cost. Your payroll records and a realistic sense of what your role commands locally settle it, and two defensible readings of it are possible, say, if the market rate for your role is genuinely arguable. That makes it a legitimate source of a range endpoint. Hold every other input constant, change this one between the two defensible readings, and the difference in the result is a real edge with a stated reason behind it.

Expected growth, how long earnings will continue, business and industry risk, and marketability are a different kind of input. The calculator doesn't validate them, and neither can you at this stage. You don't yet know how a buyer will read your customer list, your industry, or your dependence on yourself, and no amount of care with the arithmetic changes that. For these, the honest move is to record them as unresolved rather than to spread a percentage around them. A range whose width comes from two documented readings of owner compensation is a range with reasons. A range whose width comes from guessing plus or minus on risk is a preferred number with a costume on.

This is also why an early range is early. The Australian government's business.gov.au guidance on valuing a business starts not with a method but with the underlying record: financial statements, debts, assets, legal documents, market and competitor information, forecasts, procedures, staff, suppliers, and customers. Only after that does it get to methods, and it says there's no one set method and a combination may be used. The order matters. The judgments the calculator asks you for become answerable, or at least arguable, once that record exists and someone other than you has read it. Until then, the range has stated reasons for its width, and some of its inputs are honestly marked unknown.

One thing it still doesn't describe is the money.

Why the range is not the cash you take home

Company value, headline price, equity value, and cash received are four different labels, and the distance between them is set by an agreement you haven't negotiated yet.

The survey bands you borrowed from are enterprise-value bands, and enterprise value, by the IBBA definition, includes the company's debt and its balance-sheet cash. It's the value of the whole operation regardless of who financed it. What you take home is what's left for the equity after the agreement has dealt with everything else, and the agreement defines how.

A purchase agreement filed with the SEC, between Q-Generation Holdings LLC and Vistra Operations Company LLC and dated December 31, 2025, shows the shape. Its defined "Implied Equity Value" starts with enterprise value, adds defined closing cash and defined closing net working capital, and subtracts defined indebtedness and defined transaction expenses. Every one of those words — cash, working capital, indebtedness, expenses — is defined inside that agreement, for that transaction, and the definitions are what the parties negotiated. The same agreement provides for the seller to estimate the figure before closing, the buyer to calculate it after closing, and a Closing Adjustment Certificate that must include supporting calculations and documentation for the final adjustment.

We're not offering that as a formula for your sale. Those definitions govern that deal and no other, and your own agreement will determine how debt, cash, and working capital are actually treated, including whether each of those items appears at all. What the filed agreement demonstrates is the general fact: value goes in, defined adjustments apply, a number comes out, and even then the parties expect the number to move enough that they write a documented reconciliation into the contract. The detailed route from a stated enterprise value to seller proceeds is at /enterprise-value-vs-equity-value/.

There's a second boundary on the other side of the table. If a buyer finances the purchase through a program covered by the SBA's lending procedures in SOP 50 10, that guidance carries its own valuation and financial-verification requirements for covered change-of-ownership lending. A valuation prepared to satisfy a lender answers the lender's question — whether the loan is supportable — and applies only to the programs and circumstances that guidance covers. It's a different exercise from your planning range, and it doesn't predict what a buyer will pay.

So when you carry your range forward, carry it as what it is: a labeled estimate of what the whole company might be worth, agreeing with the survey band it was built from, with its uncertain inputs marked. Between that figure and a wire into your account sits an agreement that defines its own terms, a seller's estimate, a buyer's recalculation, and a certificate with the supporting documentation attached — because even parties who have already signed expect the number to move.