What is my business worth?
Your business is worth what buyers have actually paid for businesses like yours, capped by what a lender will finance against your cash flow. Those are two different numbers, set by two different forces, and the honest answer lives where they meet. Everything else, the online calculators, the rules of thumb, the number your friend got, is a guess wearing a suit.
The two masters that set every price
Every real transaction answers to two masters. The first is the market: what buyers have been paying for businesses of your size, in your industry, with your risk profile. That history shows up as a multiple, a range like four to six times earnings, and it is wide because businesses that look similar on the surface carry very different risk underneath. The second master is the bank: most buyers of businesses your size borrow most of the price, and a lender will only lend what your cash flow can safely repay. A buyer can love your business at any price. They can only close at a price the debt supports.
This is why so many owners hear different numbers from different people. The market multiple and the financeable ceiling are calculated differently, move differently, and are rarely the same figure. A price above what debt can carry is not a price, it is a wish. A price below the market band is a gift to the buyer. The worth of your business is the zone where both masters say yes.
What the earnings number really is
The multiple gets the attention, but the number underneath it matters more. For businesses under roughly five million in earnings, buyers usually work from SDE, seller's discretionary earnings: your profit plus your own compensation and the personal expenses the business carries for you. Larger buyers work from EBITDA. The two can differ by hundreds of thousands of dollars on the same business, and every add-back you claim will be tested line by line. In a real deal, the difference between the earnings story you tell and the earnings a buyer can verify is the single most common reason prices fall after a handshake.
A worked example
Take a demonstration manufacturer we use to show the mechanics: about $4.1 million in revenue, verified EBITDA of $1,276,034, SDE of $1,358,834. The market for its industry has paid between 4 and 6 times EBITDA. That alone suggests a wide range, roughly $5.1 million to $7.7 million, which is almost useless to an owner. Now apply the second master. At today's lending terms and a buyer's required return, the math caps what a purely financial buyer can pay at about 5.5 times. Suddenly the honest zone narrows to roughly $5.7 million to $7 million, and every number in it can be traced to a source: the comps that set the band, the cash flow that carries the debt, the return a buyer has to earn. That is what a defensible price looks like. Not a guess, a calculation you can hand to a skeptic.
Why the free calculators get it wrong
Most free valuation tools multiply your revenue or profit by an industry average and stop. They ignore the second master entirely: nothing about whether a bank would finance the result, nothing about customer concentration, owner dependence, or how much of your earnings survive verification. An average multiple applied to an unverified number produces a confident-sounding figure that no lender and no serious buyer will honor. The direction is sometimes right. The number is not something you can act on.
What actually moves your number
Two businesses with identical profit sell for very different prices. The differences are specific and measurable: how much of your revenue depends on your few largest customers, how much of the business runs without you personally, how clean and verifiable your books are, how your earnings trended through bad years, and whether the buyer who wants you has strategic reasons to pay above what the math supports. These are not vibes. Each one moves the multiple by a knowable amount, and knowing which ones move yours is the difference between pricing your business and guessing at it.
Where good advice fits
None of this replaces judgment. An experienced advisor's read on your buyer, your negotiation, and your industry is worth more once the arithmetic is honest, not less. What should never happen is paying for arithmetic dressed up as judgment, or walking into the market with a number nobody checked against the bank's math. Establish the real value first, at the very start, before the narrative and the hope get a vote. Then let the humans do what only humans do.