What’s My Business Worth?
3 Methods We ALWAYS Use
02 March 2026: What’s MY Business Worth?
Many business owners spend years chasing revenue growth without ever asking a more important question: What’s my business worth?
But valuation is what ultimately determines your freedom.
The value of your business determines whether you can step back, sell, scale, raise capital, or transition into a new phase of life on your terms. If you do not know your valuation today, you are building without a defined target. You are making pricing decisions, hiring choices, investment bets, and growth plans without knowing how they impact the one number that ultimately matters when it comes time to sell.
(And remember our tagline: “Every business that doesn’t fail will sell…EVERY ONE!”℠)
Most professional valuations combine several of these approaches to arrive at a defensible, credible number. When we take on a valuation assignment, we rarely use fewer than four methods – and generally five or six. The following three are the ones we rely on 95% of the time.
The Multiples Method
The multiples method is the most common starting point in business valuation. This approach takes your Discretionary Earnings (DE) or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and applies an industry multiple. That multiple reflects factors such as:
- Risk
- Growth potential
- Market demand
- Industry trends
- Company size
For example, consider three businesses with similar DE: A stable local retail business may trade at 1.5x to 2.5x DE. An HVAC company with multiple service contracts might trade at 3x to 5x DE. A scalable technology company may trade at 5x DE or higher.
Though there are many other factors to be considered – including the type of buyer you’re targeting – the main difference lies in risk and scalability.
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The multiple increases when perceived risk decreases. Clean financials, recurring revenue, diversified clients, strong systems, and low owner dependence typically result in stronger multiples. Business buyers use this method as a market comparison tool. If comparable companies are selling at 4x and you are asking for 9x, you will need compelling evidence to justify that premium.
This method is attractive because it is simple and grounded in real transactions. It reflects what the market is actually paying.
However, multiples alone do not always capture the full story.
Discounted Cash Flow
While the multiples method focuses on past and current earnings, the Discounted Cash Flow (DCF) method is a technique used to estimate the current value of future cash flows.
DCF projects your future cash flow and calculates what those earnings are worth in today’s dollars. It factors in expected growth rates and risk.
This method is especially relevant for:
- High growth businesses
- Companies expanding into new markets
- Businesses with strong long term contracts
- Companies reinvesting heavily to scale
If your company is scaling rapidly, a simple multiple may undervalue your potential. Rapid reinvestment often suppresses short-term profit. On paper, earnings may appear modest. But future cash flow may be significantly stronger.
DCF allows you to demonstrate that those future profits justify a higher valuation today
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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
For example, if you have signed multi-year contracts or expanded into new territories, a DCF analysis can, within certain limits, estimate the current value of that future revenue.
However, projections must be realistic. Overly optimistic forecasts can damage credibility during due diligence. Sophisticated buyers will analyze your assumptions:
- Are growth rates supported by historical data?
- Are margins realistic?
- Are contracts enforceable and transferable?
- Is customer retention factored in conservatively?
Ambitious projections without evidence do not increase valuation. They increase skepticism.
A well-supported DCF model can elevate your value. An unrealistic one can reduce buyer confidence.
Are you a business owner? Check out our YouTube channel for help in valuing and selling your business.
Capitalization of Earnings
The capitalization of earnings method is designed for stable, predictable businesses.
Instead of projecting aggressive growth, this approach assumes consistent earnings into the future. Normalized earnings – i.e., Discretionary Earnings – are divided by a capitalization rate that reflects risk and expected return.
The capitalization rate (or cap rate) represents the return an investor requires based on perceived risk.
- Lower risk businesses receive lower cap rates, which result in higher valuations.
- Higher risk businesses receive higher cap rates, which reduce valuation.
This method works well for:
- Mature businesses
- Companies with long operating history
- Businesses with recurring and predictable income
Buyers appreciate this model because it emphasizes steady returns and lower volatility. Using this method, reducing risk directly increases value. Risk decreases when:
- Revenue is recurring
- Clients are diversified
- Systems are documented
- Financial reporting is clean
- Leadership extends beyond the founder
Cap rates – the rate of return a buyer can expect – are determined in large part by what options exist for that buyer’s capital. Such options range from the least risky – U.S. bonds – through bank CDs, real estate, the stock market – and up to the most risky – your crazy uncle’s plan to start a sock-making business for feral cats
A business heavily reliant on one individual will command a higher cap rate and a lower valuation.
A business built on systems, strong leadership, predictable profit, and documented processes will attract stronger interest and better pricing.
Why Professional Valuations Use Multiple Methods
In the real world, professionals rarely rely on just one valuation approach. A comprehensive valuation compares:
- Market multiples
- Future cash flow projections
- Earnings stability (return on investment)
Each method offers a different lens.
Multiples reflect current market conditions.
DCF highlights growth potential.
Capitalization of earnings evaluates stability and risk.
The goal is not to identify a single perfect number. It is to establish a realistic valuation range where the data aligns.
When multiple methods point to a similar range, your valuation becomes credible and defensible. When they diverge significantly, it highlights areas for improvement. That range becomes your strategic benchmark for growth.
The Bottom Line
When you understand how buyers calculate value, you make different decisions.
You focus on:
- Reducing owner dependence
- Strengthening recurring revenue
- Improving margins
- Building leadership depth
- Documenting systems
You begin designing a company that can thrive without you. A business that depends heavily on one person will attract lower multiples and higher cap rates.
A business built on systems, strong leadership, predictable profit, and diversified revenue will command stronger pricing and attract more buyers. The earlier you understand your valuation, the more time you have to improve it.
Value improvements compound. Structural weaknesses take time to fix. Strategic clarity creates leverage. Do not wait until burnout – or a call from someone like us – forces your decision.
Know your number now. Then focus on increasing it.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at jo*@*******************og.com.
Check out our video series, “How Much is My Business Worth“on our YouTube channel.
“It always seems impossible… until it’s done.”
–Nelson Mandela
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at jo*@*******************og.com
