THE SHORT ANSWER A business sells for its earnings times a multiple. Earnings means the verifiable cash it produces for its owner; the multiple prices risk. Recurring revenue, clean books, and a business that runs without you push the multiple up. Owner dependence, messy numbers, and customer concentration pull it down. The price is built years before the sale.
The honest answer to "how much can I sell my business for" isn't a number — it's a formula. Every buyer you'll ever sit across from is running the same basic math, and once you know it, you can work it in your favor years before you ever take a meeting.
Our credential for writing this: we built FreedInsure from a $227 first paycheck to $1.3M a year with three-quarters of the book renewing. We've done the homework the expensive way.
The formula buyers use
Everything else — the meetings, the letters of intent, the negotiation theater — is a fight over those two variables.
Earnings means different things at different sizes. For most owner-run businesses, buyers use SDE (seller's discretionary earnings): profit plus your salary plus the personal expenses running through the business — the true cash the business throws off to whoever owns it. Larger businesses get valued on EBITDA. Either way, the first thing a serious buyer does is rebuild this number themselves from your books. If your books are messy, they rebuild it pessimistically.
The multiple is where fortunes are made and lost. Two businesses with identical profit can sell for wildly different prices — because the multiple prices risk. The less risky your earnings look to a stranger, the more years of those earnings they'll pay for upfront.
What sets your multiple
- Recurring vs. one-time revenue. The single biggest lever. Revenue that renews on schedule is worth more than revenue you have to re-hunt every month.
- Owner dependence. If the business needs you, the buyer is buying a job with a resignation letter attached. Multiples drop hard.
- Growth trend — with proof. A climbing, documented trend gets paid for. A verbal "we're about to take off" gets ignored.
- Clean books. Buyers pay for what they can verify. Every number you can't support becomes a discount.
- Customer concentration. If one client is a third of revenue, that client is a risk the buyer prices in.
- Industry demand. When acquirers are consolidating your industry, multiples expand. Timing matters more than owners want to admit.
Rules of thumb — and why they're only that
Most small owner-run businesses trade in the low single digits of SDE. Books built on recurring revenue command real premiums over that. Beyond those generalities, ranges vary so much by industry and deal structure that anyone quoting you a precise multiple without seeing your books is guessing.
Our receipt: what makes FreedInsure worth anything isn't our negotiating — it's the renewals. Recurring, provable, and not dependent on us staying. 3,046 policies, roughly $2.6M a month in premium under management, three-quarters of the book renewing. We spent 18 months deliberately making all three of those things true.
The discounts buyers apply
Expect the offer to come in below your fantasy number, adjusted for: earnings they couldn't verify, revenue that routes through you personally, customers who might leave with you, and any pipeline you can't document. None of this is personal. It's the same checklist every time — which is exactly why you can prepare for it.
How to raise the number before you sell
This is the part most owners skip, and it's worth more than any negotiation tactic. Give yourself 12–18 months and work the multiple's levers directly:
- Shift the revenue mix toward recurring — contracts, renewals, retainers, subscriptions.
- Get yourself out of the critical path: documented process, a second closer, a team held to numbers.
- Clean the books until a stranger could verify every line.
- Diversify the customer base so no single loss scares a buyer.
- Build the scorecard — buyers pay more for a business that can prove its own numbers on demand.
A worked example: the same business at two prices
Purely illustrative numbers, to make the machinery visible. Take a business producing $300K in seller's discretionary earnings. As-is — owner in every deal, month-to-month customers, books that need explaining — a buyer offers 2.5x: $750K. Now run the same business through eighteen months of deliberate work: a chunk of revenue converted to contracts and renewals, a manager running daily operations, financials a stranger can verify in an afternoon. Same earnings, but now the risk profile justifies 3.5x: $1,050,000. That's a $300K raise for work that also made the business easier to run. This is why we keep saying the exit is built, not negotiated.
How to value a business yourself — the rough cut
You'll want professionals before you sign anything, but you can get a sober first estimate of what your business is worth in an evening:
- Compute your SDE. Net profit, plus your salary, plus the personal expenses genuinely running through the business. Be honest — the buyer's accountant will be.
- Find your industry's multiple range. Trade associations, broker listings for businesses like yours, and anyone in your industry who's recently sold. Ranges, not points.
- Place yourself in the range honestly. Recurring revenue, low owner-dependence, and clean books push you toward the top. Concentration, messiness, and "the business is me" pull you toward the bottom — or below it.
- Run the stranger test. Would you pay that price for this business if you had to run it without you? If the honest answer is no, you've found your to-do list.
Straight answers
Still sellable — but expect the lower end of your industry's multiple range, because the buyer is purchasing a hunting ground instead of a harvest. Converting even part of the revenue base to contracts, retainers, or renewals before selling is usually the single highest-ROI move available.
No. Potential is your sales pitch; proof is their price. If the potential is real, capture some of it first and sell the proof — or negotiate an earnout where the buyer pays for the upside only if it arrives.
Books that don't verify. The moment a buyer catches one number that doesn't reconcile, every other number gets a haircut. Second place: discovering that the owner personally holds the key relationships — because then they're not buying a business, they're buying a goodbye.
To be clear: this isn't a valuation of your business, and we're not valuation advisors — it's the math buyers run. But the pattern is universal: the price is set years before the sale, by how the business is built.
