What your business may be worth

First, define what the number is for

“What is my business worth?” sounds like one question. In practice it contains several. Are you deciding whether to sell, planning an internal transfer, testing a buy-sell agreement, considering a gift, negotiating with a partner, or simply deciding where to invest next? Are you valuing the operating company, all of its equity, a controlling interest, or a minority interest with specific rights? What is the valuation date?

What assumptions apply to cash, debt, real estate, working capital, owner employment, and the assets included in a possible transaction?

Those are not technicalities. They determine what the answer means. IVS 200 sits within standards that require clarity about the asset or interest, intended use, basis of value, scope, data, model, and reporting. Its official training material also explains that market, income, and cost approaches each tell only part of the story; the appropriate approach is the one that can be justified for the asset, purpose, and evidence. ¹

AICPA's VS Section 100 resources likewise distinguish professional valuation and calculation engagements and emphasize scope, development, reporting, judgment, and responsibility for the conclusion. ³

For the broader sequence of methods, earnings work, and value drivers, use the valuation desk.

For an owner considering a sale, a planning range can still be useful. It can reveal whether expectations and likely proceeds are far apart, show which assumptions move the result, and identify weak records before a buyer does. But label it correctly. A planning range is not automatically an appraisal, fairness opinion, tax valuation, lender-approved valuation, or promise of market price.

If the decision has legal, tax, financial-reporting, dispute, or fiduciary consequences, ask the responsible professional what standard, basis, date, and report are required before commissioning the work.

Write a one-sentence assignment before opening a spreadsheet: “Estimate a planning range for 100% of the operating company as of the agreed date, assuming the listed assets and liabilities, to decide whether to begin sale preparation.” That sentence will not settle every issue, but it keeps a casual estimate from drifting into a different claim.

Build the earnings number from records, not memory

The fastest useful starting point is a monthly bridge that another person can reproduce. Gather at least three full years of business tax returns, year-end financial statements, monthly profit-and-loss statements and balance sheets, the current year-to-date period, general-ledger detail, payroll records, debt schedules, capital-spending history, and a list of related-party transactions. Reconcile annual totals to filed returns and explain differences.

Then connect recent changes to operating facts: price, volume, customer mix, headcount, capacity, acquisitions, lost accounts, backlog, and unusual events.

Next, define the earnings basis. Small owner-operated companies are often discussed using seller's discretionary earnings, while larger or management-led companies are often discussed using EBITDA or another cash-flow measure. The label is less important than the bridge. Show the starting line, every proposed adjustment, its period, the source document, why it will or will not continue, and how a buyer would operate the company after closing.

Owner compensation deserves special care. If the owner sells, manages, produces revenue, maintains customer relationships, or holds a required credential, that work does not disappear merely because payroll called it owner pay. The post-close model may need market compensation for a manager, salesperson, technician, clinician, or other replacement role.

AICPA's current reasonable-compensation framework treats role definition, assumptions, data selection, and consistency as judgment areas that can materially affect earnings normalization and a valuation conclusion. ⁴

Apply the same discipline to proposed add-backs. A personal expense recorded in the business may be removable if records establish it and a buyer will not incur it. A completed one-time legal matter may be nonrecurring. But deferred maintenance, recurring “one-time” consulting, under-market rent, missing management expense, or costs required to sustain current revenue may need to remain or be replaced. The objective is not the highest adjusted earnings number.

It is the most defensible view of the economics under the stated operating model.

Revenue quality belongs beside earnings. Create schedules for revenue and gross margin by customer, product or service, location, channel, and recurring versus project work when those distinctions matter. Include contract duration, termination and assignment terms, renewal history, backlog definitions, pipeline conversion, refunds, credits, and the person who owns each relationship. The records should let a reviewer tell the difference between durable performance and a good year that may not repeat.

Test the company through more than one lens

Three broad approaches organize most valuation discussions. The income approach converts expected future economic benefits into a present value. A capitalized-earnings method may fit relatively stable performance; a discounted cash flow model can make changing growth, margins, reinvestment, and risk explicit. Either can produce false precision when the forecast is unsupported.

The hard work is not the formula—it is reconciling the forecast to capacity, customer behavior, costs, capital needs, taxes, and a supportable risk or return assumption.

The market approach compares the company or interest with relevant transactions or public companies. A multiple is a compressed conclusion, not a fact that travels safely without context. Check what the observed price includes, the date, company size, industry and business mix, growth, margins, earnings definition, leverage, control, liquidity, and data quality.

A revenue multiple applied to a low-margin business and an EBITDA multiple applied to a high-margin business do not become comparable because both are called “market data.” Private transaction information can also be incomplete.

The asset or cost approach considers the company's assets and liabilities, often after adjustments to their relevant values. It may carry more weight for holding companies, capital-intensive businesses, underperforming companies, or situations in which asset disposition is economically important. It may carry less explanatory power for a profitable operating company whose value depends on assembled people, relationships, systems, and other going-concern attributes.

The SBA's buyer guidance lists capitalized earnings, cash flow, tangible assets, excess earnings, and specific intangible assets among methods a buyer may encounter, which is a useful reminder that one method does not fit every fact pattern. ⁵

IRS Revenue Ruling 59-60 applies in a specific estate-and-gift-tax context, not as a sale-price recipe. Its broader lesson is still instructive: it says no general formula fits the many valuation situations involving closely held stock and directs attention to all available financial data and relevant factors.

Those factors include the company's history, economic and industry outlook, book value and financial condition, earning and dividend capacity, goodwill and other intangibles, prior transactions, and comparable securities. ² A sale-planning analysis should not claim tax authority, but it should be at least as honest about context and evidence.

A worked range that shows what matters

Hypothetical example—not market evidence, not a valuation, and not a suggested multiple. Alder Services reports $720,000 of latest-twelve-month EBITDA. The owner proposes adding back $90,000 of personal expenses and $140,000 of above-market owner compensation. The record review supports only $60,000 of the personal expenses. It also finds that the owner leads key accounts, so the post-close model needs $110,000 of additional commercial leadership cost.

A $75,000 insurance recovery included in earnings is nonrecurring and must be removed.

The provisional bridge is therefore $720,000 + $60,000 + $140,000 - $110,000 - $75,000 = $735,000. Every line has a document and an operating assumption. If customer leadership can be transferred to the existing team without the added hire, earnings change. If the $60,000 of expenses cannot be substantiated, they stay in the cost base.

If recent growth required capital spending that is absent from the cash-flow model, the result needs another adjustment.

Once the earnings basis and transfer risks are documented, reveal a preliminary range in the single private valuation intake.

To test sensitivity only, suppose the owner applies invented planning factors of 3.5 and 4.5 times the provisional earnings. The resulting enterprise-value scenarios are about $2.57 million and $3.31 million. Those factors are not observed transaction data and should not be quoted as a market range. Their only purpose is to expose how the math reacts.

At the lower factor, a $100,000 change in maintainable earnings changes indicated enterprise value by $350,000; at the higher factor, it changes value by $450,000. That is why arguments about adjustments and durability often matter more than adding another decimal place to the multiple.

Now stress the business rather than only the factor. Assume the largest customer produces 24% of revenue, the contract is terminable on short notice, and the owner is the relationship lead. A buyer may revise the forecast, require a transition, change the risk assumption, change the structure, or decline to proceed. This guide does not assign a universal discount to that risk.

The right response is to document concentration, margin, tenure, renewal behavior, contract terms, customer contacts, and a practical handoff plan, then let the selected method and transaction terms reflect the evidence.

Ask what survives when you step away

A business can produce attractive historical earnings and still be difficult to transfer. Review five dependencies. First, customers: how much revenue and margin sit with the largest relationships, what contracts allow, and whether the company or the owner holds the trust. Second, people: who runs daily operations, sells, prices, approves work, controls cash, holds licenses, and knows how exceptions are handled.

Third, systems: whether processes, data, job costing, cybersecurity, reporting, and quality controls live in reliable systems or in memory.

Fourth, suppliers and facilities: whether essential inputs, leases, permits, equipment, and capacity can continue. Fifth, capital: what inventory, working capital, maintenance, and growth investment are required to produce the forecast.

Do not turn this into a decorative score. Build evidence. A customer schedule should reconcile to the general ledger. A management chart should name actual decision rights, not just titles. A recurring-revenue report should define “recurring” and show retention by cohort. Backlog should distinguish signed work from proposals. A process map should identify where the owner still intervenes.

A risk becomes more useful when it has a fact owner, source document, financial effect where estimable, mitigation plan, and review date.

Growth also needs a transfer test. Separate price, volume, acquisition, new location, and mix effects. Compare forecast sales with productive capacity, hiring needs, customer acquisition, delivery time, gross margin, working capital, and capital expenditure. If the forecast assumes expansion, show who will execute it after the owner reduces involvement. Buyers may value the same growth plan differently because their capabilities, financing, synergies, and required returns differ.

A strategic buyer's possible synergy is not automatically value the seller can claim.

Bridge headline value to money the owner can use

Even a well-supported enterprise-value range is not an answer to “what will I receive?” Build a separate proceeds model. Start with the indicated enterprise value, then apply the transaction's definitions for cash, debt, debt-like items, normalized working capital, excluded assets, retained liabilities, escrow, holdback, seller financing, contingent consideration, rollover equity, and transaction expenses. Model taxes with a qualified tax professional rather than a generic percentage.

Show cash at close, amounts paid later, amounts subject to conditions, and value that remains invested.

Asset and equity transactions can produce different legal, tax, consent, liability, and operational consequences. Do not assume the economic bridge or tax result from the label alone. For covered transfers of a group of business assets, the IRS instructions for Form 8594 explain when buyer and seller generally report an allocation and how later changes in consideration may require supplemental reporting.

⁶ Applicability and allocation belong with transaction counsel and a tax professional; the important owner habit is to surface the issue before treating headline value as spendable cash.

Compare offers on one page. Include total stated consideration, cash at close, financing certainty, working-capital and debt mechanics, escrow, earnout measurement and control, seller-note security and priority, rollover rights and liquidity, employment or transition duties, indemnity exposure, conditions to close, and an after-tax scenario reviewed by an advisor.

A higher headline price can be the less attractive outcome when more of it is conditional, delayed, or exposed to risks the seller cannot control.

What to do in the first ten working days

Begin with a controlled workroom, not a buyer list. Assign one owner for the file. Reconcile three years of tax returns and annual financial statements to monthly results. Draft the earnings bridge and attach evidence to every adjustment. Build customer, product or service, employee, contract, debt, capital-expenditure, and working-capital schedules. Write down the owner's actual weekly responsibilities.

List open legal, tax, regulatory, cybersecurity, environmental, insurance, and credential issues without trying to solve them in the summary.

Then hold a two-hour challenge session. Ask which revenue would be at risk if the owner disappeared for ninety days; which forecast assumptions lack operating support; which adjustments a skeptical buyer would reject; which contracts or permits need consent; and which items separate enterprise value from proceeds. Turn the answers into an issue log with a record, responsible person, next action, and review date.

Only then use a directional calculator to test scenarios or commission the appropriate professional work. You should be able to explain the assignment, earnings basis, major risks, selected methods, and proceeds bridge in plain language. If you cannot, the next step is better evidence—not a more confident number.

• Reconcile tax returns, annual financials, monthly results, and the general ledger.
• Attach evidence to every proposed earnings adjustment and replacement-role assumption.
• Build customer, employee, contract, debt, capital-spending, and working-capital schedules.
• Record owner responsibilities and unresolved legal, tax, regulatory, insurance, and credential issues.
• Turn challenge-session findings into an issue log with an owner, action, and review date.