Why it's a range, not a number
Unlike a public stock with a quoted price, a private company's value depends on who's asking and why. A strategic acquirer might pay a premium for synergies a financial buyer wouldn't value at all; a buyer already in your industry might discount for risks a newcomer wouldn't recognize. Multiple credible methods can produce different answers, and all of them can be "right" depending on the buyer.
Anyone offering you a single precise number without knowing your buyer pool is oversimplifying. A credible advisor gives you a range and explains what would move you toward the top or bottom of it.
Common valuation methods
| Method | How It Works | Best For |
|---|---|---|
| Comparable Transactions | Applies multiples from recent, similar M&A deals to your financials. | Most private company M&A, the most commonly cited method. |
| Comparable Public Companies | Applies trading multiples of similar public companies, often with a private-company discount. | Larger deals, or industries with clear public comparables. |
| Discounted Cash Flow (DCF) | Projects future cash flows and discounts them to present value. | Businesses with predictable, modelable growth. |
| Asset-Based | Values the business based on net asset value rather than earnings. | Asset-heavy or distressed businesses with limited earnings. |
Multiples & what drives them
In practice, most lower-middle-market deals are priced as a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization), a proxy for the cash-generating capacity of the business, independent of how it's financed or taxed. High-growth software companies are often valued on revenue multiples instead, since profitability isn't always the relevant signal at that stage.
Multiples vary enormously by industry, growth rate, size, and market conditions at the time of sale, general "typical multiple" ranges you might see cited are illustrative at best. Ask an advisor with recent deals in your specific industry what they're actually seeing.
What moves a multiple, up or down
- 01
Customer concentration
A business where one customer is 40% of revenue is riskier, and worth less, relative to earnings, than one with a diversified base.
- 02
Revenue quality & recurrence
Recurring or contracted revenue is valued more highly than one-off project revenue, because it's more predictable for a buyer underwriting the deal.
- 03
Growth trajectory
A business growing 20% a year commands a different multiple than a flat or declining one, even at similar current EBITDA.
- 04
Owner dependence
A business that can't function without the owner personally is discounted, buyers pay for a business, not a job they'll have to fill.
- 05
Financial statement quality
Clean, well-documented financials reduce perceived risk and diligence friction, both of which affect what a buyer is willing to pay. See our Quality of Earnings guide.
Getting a realistic range
A credible range comes from an advisor who's closed deals recently in your industry and at your size, not a generic rule of thumb or an online calculator. See our how to choose an advisor guide, and be wary of any firm quoting a specific number before reviewing your actual financials, see the red flags in that guide.