Sell My Business: A Broker's Guide to Valuation and Seller Preparation

Every week, I get calls from business owners who want to sell. And every week, I have the same conversation: "Your business isn't worth what you think it is."

It's not because I'm trying to lowball them. It's because most owners have no idea how buyers actually value SMB businesses. They've read articles about "5x EBITDA multiples" and assume that applies to their $2M revenue company.

Spoiler alert: It doesn't.

The Valuation Reality Gap

Here's what owners think their business is worth: "I make $500K a year, so at a 5x multiple, that's $2.5M."

Here's what buyers actually pay: "After add-backs, normalized EBITDA is $300K. With customer concentration risk and key-person dependency, I'm comfortable at 3x. That's $900K, plus maybe $200K for working capital. So $1.1M total."

The gap: $1.4M. And that's why 80% of listings never sell.

What Buyers Actually Care About

1. Maintainable Earnings

Not what you made last year. Not what you could make in a perfect world. What a new owner can realistically maintain without you.

That means:
- Removing owner perks (your company car, your family members on payroll)
- Normalizing one-time expenses and windfalls
- Accounting for the fact that you won't be there to close deals

I had a $3M revenue service business owner insist his company was worth $4M based on "recast EBITDA." After we normalized for his $150K salary (he was working 20 hours a week), his wife's $80K "consulting" fee (she never showed up), and the $200K one-time contract that wouldn't repeat, his maintainable EBITDA dropped from $800K to $350K.

The valuation: $1.2M, not $4M. He walked. Six months later, he came back and we closed at $1.1M.

2. Risk Factors

Buyers discount heavily for:
- Customer concentration: If 40% of revenue comes from one client, that's a massive risk
- Key-person dependency: If you're the only one who can close deals, the business isn't transferable
- Industry headwinds: Declining markets get lower multiples
- Regulatory risk: Changing regulations can kill a business overnight

3. Growth Trajectory

A business growing 20% annually commands a premium. A business declining 10% annually gets discounted—hard.

The brutal truth: Most SMB businesses are flat or declining. Buyers know this. They price accordingly.

Preparing Sellers for Reality

Here's my process:

Step 1: The Financial Deep Dive

I spend 2-3 hours with the owner going through every line item. We identify add-backs. We normalize expenses. We project maintainable earnings.

Key question: "If you weren't here, what would this business actually make?"

Step 2: The Risk Assessment

We identify every risk factor. Customer concentration. Key-person dependency. Industry trends. Regulatory exposure.

Key question: "What could kill this business in the next 24 months?"

Step 3: The Market Reality Check

I show them comparable sales. Not the cherry-picked success stories from BizBuySell. The real transactions—including the ones that didn't close because sellers had unrealistic expectations.

Key question: "Do you want to sell, or do you want to hold out for a price that will never come?"

The Preparation Phase

Once we've aligned on valuation, we spend 3-6 months preparing the business for sale:

• Financial cleanup: Get the books in order. Clean up add-backs. Document everything.
• Operational documentation: Create systems so the business can run without the owner
• Customer diversification: Reduce concentration risk where possible
• Management depth: Develop a second-in-command who can run the business

The result: A business that commands a premium because it's actually transferable.

The Bottom Line

Valuation isn't a negotiation. It's a reality check. Your job as a broker is to help sellers understand what their business is actually worth, then prepare it to maximize that value.

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