Valley Spire Insights Article 2 – What You Business is Actually Worth in Today’s Market

Most owners carry a number in their head. Buyers carry a framework. The difference between those two things is what exit preparation is really about.

Ask a business owner what their company is worth and you’ll almost always get an answer. Sometimes it’s a number they’ve been carrying for years. Sometimes it came from a conversation with their accountant, or a rough calculation based on what a competitor supposedly sold for, or simply a gut feeling built from decades of hard work.

What you’ll rarely get is a framework – a structured way of thinking about how buyers actually arrive at a valuation, what factors they weight most heavily, and what an owner can do to move that number in a meaningful direction.

That framework is what this article is about. Not a precise valuation of your business – that requires a proper analysis of your specific financials and circumstances – but the conceptual model that makes everything else in exit preparation make sense.

The number in your head is based on what you put in. The number a buyer offers is based on what they expect to get out. Closing the gap between those two requires understanding how buyers think about value.

The Most Common Valuation Misconception

The single most common valuation misconception I encounter among business owners in the $3M-$30M revenue range is this: that their business is worth a multiple of revenue.

It’s an understandable assumption. Revenue is the number owners know best. It’s what they report, what they track, what they celebrate. And for some business types, particularly high-growth technology companies where profitability is deliberately deferred, revenue multiples are used as a valuation shortcut.

But for the vast majority of established, profitable businesses in this size range, buyers think almost entirely in terms of EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is the proxy for operating cash flow. It answers the question buyers are actually asking: how much money does this business generate, after paying for everything it needs to operate, before the effects of financing and accounting decisions?

Using revenue as your valuation anchor leads owners to dramatically over- or underestimate what their business is worth. A $10M revenue business with strong margins and a 5x EBITDA multiple may be worth far more than a $15M revenue business running thin margins at 3.5x. The revenue number, on its own, tells a buyer almost nothing.

How Multiples Work – and What Drives Them

Once you understand that buyers are valuing your business on a multiple of EBITDA, the next question is: what multiple? And this is where the real work of exit preparation begins.

Multiple ranges vary by industry, by business size, by market conditions, and by the specific characteristics of the business being sold. The table below shows approximate ranges for businesses in the Canadian lower-middle market as of early 2026. These are directional, every transaction is different, but they provide a useful anchor for thinking about where your business fits.

Note: Ranges reflect businesses generating $500K-$5M+ in normalized EBITDA. Businesses at the lower end of the EBITDA range typically transact at the lower end of their industry multiple range. Ranges are approximate and market-dependent.

Two things about these ranges are worth understanding. First, the spreads are wide. There’s often a two-turn difference between the low and high end of a range within the same industry category. Second, that spread is not random. It’s driven by the specific characteristics of the business – and most of those characteristics are things an owner can influence with deliberate preparation.

The business at the bottom of its range and the business at the top are often generating nearly identical EBITDA. What separates them is how a buyer answers the two fundamental questions from the first article in this series: what is the risk here, and will this business keep performing when the current owner is gone?

What Moves a Business From the Bottom to the Top of Its Range

The clearest way to illustrate this is through comparison. Consider two manufacturing businesses, both generating $1.5M in normalized EBITDA. One sells at 3.5x. The other sells at 5.5x. Here’s what that looks like in dollar terms:

Three million dollars. Same industry. Same earnings. The difference is entirely in how each business was built and how it was presented to the market.

The business that sold at 5.5x had revenue spread across a broad customer base, with no single customer representing more than 12% of revenue. It had a management team that ran day-to-day operations with limited owner involvement. It had documented processes, clean contracts, and three years of consistent financial performance with well-supported addbacks. It had a credible growth story backed by evidence.

The business that sold at 3.5x had one customer representing 38% of revenue. The owner was deeply embedded in key customer relationships. Financial records were accurate but not well-organized for presentation. There was no management layer beneath the owner. The business was good. It just wasn’t transfer-ready.

The multiple a buyer assigns isn’t a judgement of how hard you’ve worked. It’s a measure of how much risk they’re taking on, and how confident they are that the business will perform without you.

Normalized EBITDA – The Number That Actually Gets Valued

There’s one more concept essential to understanding your business’s value: normalized EBITDA. The number buyers use to value your business is almost certainly different from the number that appears in your financial statements – and in most cases, it’s higher.

Normalization is the process of adjusting reported earnings to reflect the true, sustainable operating performance of the business. The most common categories of adjustments, called addbacks, include:

Owner compensation above market rate. If you pay yourself $600,000 per year but a replacement CEO would cost $250,000, the $350,000 difference is a legitimate addback. Buyers understand that owners often take above-market compensation. A well-documented addback restores that difference to the earnings base.

Personal expenses run through the business. Vehicle costs, travel, club memberships, and similar expenses that are legitimate for tax purposes but wouldn’t exist under new ownership are typically addable. Documentation matters – every addback a buyer questions reduces the credibility of the ones they don’t.

One-time costs. Legal disputes, one-off equipment replacements, severance costs, or other non-recurring expenses that reduce earnings in a given year but don’t reflect ongoing operating reality can be added back if properly documented and genuinely non-recurring.

Related-party transactions at non-market rates. Rent paid to a related-party landlord above or below market, services from related entities at non-arms-length rates, and similar items are adjusted to market equivalents.

Done properly, normalization increases the earnings base – and because that base gets multiplied, the effect compounds significantly. A $200,000 addback on a business trading at 5x adds $1,000,000 to the enterprise value. That’s not trivial.

What it isn’t, however, is unlimited. Buyers are sophisticated and they employ accountants who will scrutinize every addback carefully. The items that recur every year but get labeled one-time will be found and challenged. The credibility damage from an aggressive or unsupportable addback is often worse than the addback was worth. The goal is accurate normalization, not creative accounting.

What This Means for How You Prepare

Understanding how buyers calculate value doesn’t just satisfy intellectual curiosity – it changes what you do with the time between now and when you decide to sell.

Most owners approaching exit think about preparation in terms of making the business more profitable. That matters, but it’s only part of the picture. The multiple is often worth more than the margin improvement. A business that increases its EBITDA by $100,000 gains $400,000-$550,000 in value at a 4x-5.5x multiple. A business that improves its multiple from 3.5x to 5x on $1.5M of EBITDA gains $2.25M – without changing its earnings at all.

That multiple improvement comes from addressing the specific factors buyers use to assess risk and transferability: customer concentration, owner dependency, recurring revenue, operational systems, team depth, legal readiness, and the quality and presentation of the financial story. We’ll cover each of those in depth in the Value Drivers series that follows.

But it starts here – with an honest understanding of where your business sits in its range today, and what would need to be true for it to sit at the top.

Valley Spire is an M&A and business sale advisory firm working with business owners generating $3M-$50M in annual revenue. This article is part of the Valley Spire Insights series on exit readiness, valuation, and the sale process.