Seller's Guide

What's Your Business
Actually Worth?

The gap between what sellers think their business is worth and what buyers will pay can be millions of dollars. Here's how to close that gap.

Get Professional Valuation Quick Valuation Tool
Dental Practices Medical/Healthcare Law Firms Restaurants

Definition: Business Valuation for Sale

The process of determining the fair market value of a business for purposes of sale, typically calculated as a multiple of Seller's Discretionary Earnings (SDE) for businesses under $5M or EBITDA for larger companies. Valuation considers financial performance, industry multiples, growth trends, customer concentration, and qualitative factors like owner dependence and competitive position.

Fundamentals

How Businesses Are Valued

SDE Method

Businesses under $5M

Seller's Discretionary Earnings = Net Income + Owner's Salary + Owner Benefits + Non-Recurring Expenses + Interest + Depreciation

Formula:
Business Value = SDE × Industry Multiple

Best for owner-operated businesses where the owner takes a salary and benefits. Multiple typically ranges from 1.5× to 4× SDE.

EBITDA Method

Businesses over $5M

EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization (assumes management is paid market rate)

Formula:
Business Value = EBITDA × Industry Multiple

Used for larger businesses with professional management. Multiple typically ranges from 3× to 8× EBITDA depending on size and industry.

Valuation Drivers

What Affects Your Multiple

Factor Increases Multiple Decreases Multiple
Revenue Trend 3+ years of growth Declining revenue
Owner Dependence Strong management team Owner does everything
Customer Concentration No customer > 10% Top customer > 25%
Recurring Revenue Subscriptions, contracts Project-based, one-time
Industry Outlook Growing industry Declining/disrupted
Documentation Clean books, SOPs Messy financials
Reason for Sale Retirement, new venture Health, burnout, distress

Industry Guides

Valuation by Industry

Dental Practice Valuation

Typical Multiple: 60-85% of Annual Collections

Key Valuation Factors

  • • Collections vs. Production: Buyers focus on actual collections, not gross production
  • • Patient Base: Active patients (seen in 18 months), average production per patient
  • • Hygiene Revenue: Practices with 30%+ hygiene revenue valued higher
  • • Fee Schedule: Below-UCR fees = room for growth = higher multiple

Red Flags That Lower Value

  • • High Medicaid/HMO percentage (lower reimbursements)
  • • Outdated equipment requiring $100K+ investment
  • • Lease with <5 years remaining
  • • Owner produces 90%+ of revenue

Dental-Specific Formula: Value = (Annual Collections × Multiple) + Equipment FMV + Inventory - Liabilities. Most practices sell for 60-85% of trailing 12-month collections, with specialty practices (oral surgery, ortho) commanding premiums.

Read Full Dental Valuation Guide

Medical Practice Valuation

Typical Multiple: 3-6× EBITDA or 40-70% Collections

Key Valuation Factors

  • • Payer Mix: Commercial insurance vs. Medicare/Medicaid dramatically affects value
  • • Ancillary Revenue: Labs, imaging, infusion add premium value
  • • Provider Coverage: Multiple physicians vs. solo practice risk
  • • Compliance History: Clean billing history, no audits or investigations

Red Flags That Lower Value

  • • Stark Law or Anti-Kickback compliance issues
  • • Heavy Medicare dependence (reimbursement risk)
  • • Aging physician workforce without succession plan
  • • Pending RAC audits or OIG investigations

Healthcare-Specific Consideration: Corporate Practice of Medicine laws in many states restrict who can own medical practices. Buyers often use Management Services Organization (MSO) structures. Factor legal/structural complexity into timeline and costs.

Read Full Medical Valuation Guide

Law Firm Valuation

Typical Multiple: 0.5-1.5× Annual Revenue

Key Valuation Factors

  • • Practice Area: PI, estate planning = higher; litigation, family = lower
  • • Fee Structure: Contingency portfolios valued differently than hourly
  • • Client Retention: Institutional clients vs. one-time matters
  • • Work in Progress: WIP and accounts receivable add to value

Red Flags That Lower Value

  • • Malpractice claims or bar complaints
  • • Key-person risk (clients follow the attorney)
  • • Trust account irregularities
  • • High associate turnover

Law Firm-Specific Challenge: Ethical rules in most states prohibit non-lawyers from owning law firms or sharing fees. "Sales" are typically structured as asset purchases (files, goodwill) with consulting agreements for transition, not equity sales.

Read Full Law Firm Valuation Guide

Restaurant Valuation

Typical Multiple: 1.5-3× SDE or 30-50% Annual Sales

Key Valuation Factors

  • • Concept Type: QSR/fast-casual > fine dining for multiples
  • • Lease Terms: Below-market rent dramatically increases value
  • • Liquor License: Transferable license adds significant value
  • • Systems: POS data, recipes documented, trained staff

Red Flags That Lower Value

  • • Lease expires <3 years (or landlord won't assign)
  • • Health department violations or low ratings
  • • High staff turnover, no management depth
  • • Cash-heavy operations with unverifiable revenue

Restaurant-Specific Reality: Most restaurants sell for equipment value plus a small premium for goodwill. Only consistently profitable restaurants with transferable systems command meaningful multiples. Franchise restaurants follow different (franchisor-controlled) valuation rules.

Read Full Restaurant Valuation Guide

Avoid These

Valuation Mistakes Sellers Make

1

Using revenue instead of earnings

Buyers pay for profit, not revenue. A $2M revenue business with $100K profit is worth less than a $1M business with $300K profit.

2

Overvaluing "sweat equity"

The 20 years you put into building the business doesn't add to value. Buyers pay for future cash flows, not your past sacrifices.

3

Ignoring add-backs (or making up fake ones)

Legitimate add-backs (owner's excess salary, personal expenses) increase SDE. But buyers and their CPAs will scrutinize every add-back-fake ones kill deals.

4

Comparing to outlier sales

"I heard a competitor sold for 6× revenue." Maybe-but that deal likely had strategic value, scale, or circumstances that don't apply to your business.

Get a Professional Business Valuation

Online calculators give you a range. We give you a defensible number backed by market data, comparable sales, and legal expertise in structuring the sale.

Request Valuation Assessment Call: (248) 266-2790

Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com

Related Seller Resources

Is Your Business Sellable?

7 factors that determine if buyers will be interested.

LOI Templates

What to expect when buyers make offers.

Due Diligence Tracker

Prepare your documents before going to market.