What is your business actually worth?
Every owner asks eventually — usually with a reason attached. Arriving at a number is the easy part. Understanding what it means, and what to do about it before you sell, is the work.
The question usually arrives with a reason: a buyer made contact, a partner wants out, retirement stopped being abstract, an advisor asked for a number. Here is the part most people get backward. There are three standard ways to put a value on a business, and you can get a defensible estimate in an afternoon. The hard part — the part that decides how much you actually walk away with — comes after the number.
The three ways value gets measured
Professional valuation rests on three approaches. A good estimate considers all three and reconciles them.
The income approach looks at what the business earns and what those earnings are worth to a buyer. Take the company's normalized profit, apply a multiple that reflects the industry and the risk, and you have a value. A business throwing off $400,000 in owner earnings in an industry that trades at three times earnings is worth roughly $1.2 million on this basis. Most operating companies are valued primarily this way.
The market approach asks what similar businesses have actually sold for. It works the way a real estate agent prices a house — by comparable sales. Its strength is that it reflects real transactions rather than theory. Its weakness is that genuinely comparable private sales are hard to find, so the comparison is rarely clean.
The asset approach totals what the business owns and subtracts what it owes. For a company whose value lives in its earnings and relationships, this understates the truth. For a holding company or one in distress, it can be the most honest measure.
No single approach is right. The judgment is in weighing them for your specific company.
The four numbers a serious read produces
A surface estimate gives you one figure. A proper read gives you four, because what it's worth depends entirely on what is being sold and why.
Asset sale value is what most owner-operated businesses actually change hands for. The buyer takes the inventory, equipment, and intangibles — the customer base, the goodwill — and you keep the cash and receivables and clear the debt. This is the number that matters in a typical small-business sale.
Equity value is what your ownership stake is worth: the asset value plus your liquid financial assets, minus your liabilities. This is the figure that governs a partner buyout, an estate filing, or a divorce.
Enterprise value is the value of the whole capital structure, equity and debt together. It is the language of middle-market M&A, because it lets a buyer compare companies regardless of how each one is financed.
Liquidation value is the floor — what the assets would bring in a forced, near-immediate sale. You hope never to need it, but knowing it tells you the downside.
Most owners have heard one number and assumed it was the number. It rarely is. Which figure is relevant depends on the transaction in front of you, and choosing wrong is how owners end up negotiating against the wrong target.
A worked example
Suppose a full-service restaurant does $3 million in revenue and roughly $650,000 in owner earnings, with modest debt and ordinary working capital. Run honestly, the asset and equity figures come out close together — call it the low $2 millions — with a liquidation floor far below that, in the tens of thousands, because used restaurant equipment sells for a fraction of its worth to a going concern.
That spread is the lesson. The same business is worth around $2 million as an operating enterprise and a small fraction of that broken up for parts. Value lives in the business working — in its earnings and its relationships — not in its furniture. Most of what you've built is intangible, and intangible value is exactly what careless preparation puts at risk.
Why the number alone misleads owners
A valuation tells you where you stand today. It does not tell you where you could stand at sale, and those are different numbers.
The distance between them is the value gap, and it is almost always the most consequential figure in the whole exercise. Customer concentration, dependence on the owner, thin or informal records, a lease that does not transfer cleanly — each one quietly discounts the price a buyer will pay, and each one is fixable with enough runway. Owners who learn their value early have time to close the gap. Owners who wait until a buyer is at the table negotiate from wherever the business happens to be.
This is why the estimate is a starting point, not an answer. The number opens the conversation that matters: given where you are, what moves the figure, and how long do you have to make those moves. In a full sale, this is the first of six phases — the decision-and-preparation work that happens 12 to 18 months before close. I've mapped the whole process in the owner's roadmap to selling a business in Texas.
What you need to get an estimate
Less than people expect. At minimum, a recent business tax return. To sharpen the estimate, three years of returns, three years of financial statements plus interim figures, and a summary of what each owner is actually paid. If you can hand those to your accountant, you can produce a credible read.
Completing a valuation costs you nothing and is faster than you'd expect: the tool walks you through it in about ten minutes, on the same engine professional advisors and institutions rely on, producing all four figures and operating measures benchmarked against your industry. What you won't get is the raw output on screen — I review every valuation myself and go through it with you, so the numbers arrive with context.
One honest note. This is an indication of value, not a certified appraisal. It is the right instrument for planning, for understanding your position, and for deciding whether and when to move. It is not a formal appraisal for tax filing or litigation. When you need that, I will say so and arrange it.
Common questions
It varies by industry and by the specific company. Owner-earnings multiples for small operating businesses commonly fall in the low single digits; revenue multiples are usually well under one for service businesses. The multiple is set by risk and growth, which is why two companies with identical earnings can be worth meaningfully different amounts.
It's accurate enough to plan on and to understand your position. A serious estimate, run on honest inputs, gives you a reliable indication of value. The final sale price is set at the table, by a buyer who has seen the financials and negotiated the terms.
An indication of value is a planning estimate. A certified appraisal is a formal opinion prepared to a professional standard for tax, litigation, or similar use. Most owners need the first far more often than the second, and confusing the two is a common and expensive mistake. Here's how to tell which you need.
Earlier than feels necessary. Knowing your value years ahead of a transition gives you time to close the value gap, which is where the return on this work actually comes from.
No. The estimate is a complimentary first read. What you do with it is your decision.
Understanding what your company is worth is the first move in any transition.