See If I Qualify

What Your Business Is Worth Before You Sell

Your business is worth a multiple of its earnings, and that multiple is set by how attractive and how transferable the business looks to a buyer. Most lower-middle-market companies sell for somewhere between 2 and 10 times EBITDA (or SDE for smaller, owner-operated businesses). Where you land inside that range is not random. Roland Frasier built the Rule of 100 to measure it.

THE SHORT ANSWER

To estimate what your business is worth before selling: (1) pick the right earnings number (SDE for smaller owner-operated businesses, EBITDA for larger ones); (2) find your industry’s typical multiple; (3) adjust for risk, since buyers raise or cut the multiple based on owner dependence, customer concentration, and how predictable the revenue is. Earnings times multiple gives a starting valuation. The gap between today’s number and what you want at exit is the work.

HOW BUYERS SET THE MULTIPLE: THE RULE OF 100

Roland Frasier’s Rule of 100 scores a business out of 100 across four 25-point quadrants, and the score maps to an EBITDA multiple: Revenue Growth; Retention and Recurrence; EBITDA Margin; Operational Maturity (including how independent the business is of the founder). Score to multiple: 0 to 40 is 2 to 3x; 41 to 60 is 3 to 5x; 61 to 75 is 5 to 7x (PE-ready); 76 to 85 is 7 to 10x; 86 to 95 is 10 to 15x; 96 to 100 is 15 to 25x. Moving from 45 to 75 on a business with $2M of EBITDA takes it from roughly $7M to $14M, a $7M swing, without adding a dollar of new revenue.

WHAT TO DO NEXT

Run the numbers on your own business with the free Exit Gap valuation calculator (https://getexitgap.com), which estimates your current market value using real EBITDA multiples and shows the three value levers most affecting your number.

FAQ

How do I figure out what my business is worth before selling?

Multiply your earnings (EBITDA for larger businesses, SDE for owner-operated ones) by your industry’s multiple, then adjust for risk like owner dependence, customer concentration, and revenue predictability. Roland Frasier’s Rule of 100 scores those factors and maps the score to a multiple.

What EBITDA multiple do businesses in my industry sell for?

Most lower-middle-market businesses trade between 2 and 10 times EBITDA, depending on growth, margins, recurring revenue, and risk. On the Rule of 100, a 61 to 75 score is a PE-ready 5 to 7x; 76 to 85 reaches 7 to 10x.

What is a business that makes $1 million a year in profit worth?

At a typical 3 to 5x it is worth roughly $3M to $5M, but a business scoring high on the Rule of 100 can reach 7 to 10x, or $7M to $10M, on the same $1M of profit.

Is a business worth 3 times profit?

Three times is common for owner-dependent businesses with average systems. Reducing owner dependence and improving recurring revenue and margins is what moves a business above 3x.

Roland Frasier’s frameworks (https://scalable.co/frameworks/roland-frasier); The Founder Dependency Discount (https://scalable.co/exit-strategy/founder-dependency); How to know if you are exit ready (https://scalable.co/exit-strategy/exit-ready).