Is Buying a Business Your 2026 Power Move? Here’s How to Evaluate What It’s Really Worth
You don’t need to become a valuation expert, you just need the right lens, the right method, and the right advisor.
Valuation isn’t just a number. It’s a decision-making tool.
When a seller is asking $3 Million for the business, most first-time buyers ask: "Is that a fair price?" But what they’re really asking is, "Will this business pay me back, grow with me, and be worth more later?"
That’s the right question. And it’s why valuation must go beyond the surface.
This article breaks down how business valuations work and how to tell if the price you’re seeing matches the true value underneath it.
Not All Valuation Methods Are Created Equal
Depending on the size, industry, and structure of the business, different valuation models apply. Here are the three most common:
- SDE/Market Multiple Method
• SDE stands for Seller’s Discretionary Earnings, a measure of total owner benefit.
• This method is most common for small businesses (under $5M in revenue).
• The price is typically a multiple of SDE (e.g., 2.5x SDE).
2. EBITDA Multiple
• EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
• Used more often for mid-sized companies or those with professional management teams.
• Clean financials and scalable operations increase the multiple.
3. Asset-Based Valuation
• Calculates value based on tangible and intangible assets.
• More common in asset-heavy industries or distressed businesses.
For most Main Street deals, you'll be looking at an SDE-based valuation. But not all SDEs are created equal.
What Justifies the Multiple?
Instead of asking, "Is 2.5x a good multiple?" ask:
"Does this business deserve that multiple?"
Multiples aren’t arbitrary. They’re a reflection of risk, quality, and future earnings potential.
- The following factors impact the multiple:
- How involved the owner is in daily operations
- Revenue concentration (one major client vs. diversified base)
- Presence of recurring revenue or long-term contracts
- Quality of financial records and reporting
- Operational systems and documented processes
- Management team and employee retention
- Industry growth and stability
I often refer to the 8 Key Drivers of Company Value to assess these. They include:
- Financial performance
- Growth potential
- Switzerland structure (independence from customers, employees, suppliers)
- Valuation teeter-totter (working capital vs. cash flow)
- Recurring revenue
- Monopoly control
- Customer satisfaction
- Hub & spoke (owner dependency)
The stronger these areas are, the higher the multiple. Weaknesses in these areas? Expect price adjustments or tighter deal terms.
Red Flags That a Business Is Overpriced
• Adjusted SDE includes questionable add-backs (e.g., one-time bonuses, personal vacations, or inflated assumptions)
• Revenue is flat or declining without a clear plan for recovery
• Customer concentration risk (e.g., 60% of revenue from one client)
• Owner is the business (no team, no processes, no transition plan)
• The price is based on what the seller "wants", not what the market supports
Value Is Earned, Not Assumed
Business valuation isn’t just about what the seller thinks the business is worth. It’s about what the business can actually produce, sustain, and become under your leadership.
Clarity creates confidence. And the more you understand the numbers, the better decisions you’ll make.
If you're buying a business, don’t stop at the asking price. Start there and dig deeper. End with a deal that builds your future.
More about Dr. Leilani
Dr. Leilani Felix-Acosta owns, operates, and leads multiple offices of First Choice Business Brokers (FCBB). Dr. Leilani is a trailblazer in the business advisory and brokerage fields and is leading the way in innovation and excellence, with client success as the foremost goal, whether through business acquisition, business growth, or exit planning. Her professional background and personal history provide a unique level of experience and understanding for her clients.
Dr. Leilani is an award-winning Certified M&A Professional and Licensed Business Broker, as well as a peer-reviewed published author. Dr. Leilani holds a Doctor of Business Administration degree with an emphasis in eCommerce and a Master of Business Administration specializing in International Business. She is also a Certified Healthcare Practice Broker and Certified Value Builder Advisor. Dr. Leilani is a contributing member of the International Business Broker Association (IBBA), Arizona Business Brokers Association (AZBBA), and Mergers and Acquisition (M&A) Source.
Additionally, Dr. Leilani is a wife and proud mother of her son Noah and her baby girl Ariella. Her family values, passion for life, culture, and growth enables her to fully comprehend the importance of success for her clients. Dr. Leilani's main goal is to continue growing, delivering exceptional services, and serving the community.