What your business is worth, and why the number moves
Normalized earnings, customer mix, recurring revenue and owner dependence — and how each one changes the figure a buyer can support.
Most owners have a number in mind. It usually comes from a competitor's sale, a rule of thumb, or what they need it to be. A buyer builds his number a different way, and it helps to know how.
Start with what the company actually earns
Your tax returns are written to keep taxes down. A buyer adjusts for that. Pay above what a hired manager would cost, the truck, the phone, family on the payroll who don't work in the business, one-time legal bills: those get added back. What is left is closer to what the company really earns.
On smaller companies that figure is called seller's discretionary earnings. On larger ones, where managers run the day to day, it is called adjusted EBITDA. Either way, an add-back has to hold up. The accountant a buyer hires will ask for the invoice, and anything you cannot show gets taken back out.
Recurring work and project work are not worth the same
Most companies earn money more than one way, and buyers do not pay the same for each. Steady, repeat work — service agreements, maintenance contracts, route customers — is more predictable than project work that depends on winning the next bid, and predictable earnings are worth more.
If your books show one blended margin, a buyer will separate the two himself, and he will be conservative about it, because he is estimating.
Say you do $6M: $1.4M of service and maintenance at 48% gross margin, and $4.6M of project work at 22%. Blended together that is one average-looking number. Split apart, it is two different businesses.
What moves the number
- Backlog that is signed and funded counts. A pipeline of bids and proposals does not.
- Management depth counts. If you personally price every job or approve every order, that works against you.
- Customer concentration counts. If one customer — a single general contractor, one OEM, one property manager — is a large share of the work, expect it to come up in the first call.
- So do the specifics of your industry: who holds the license in a licensed trade, bonding capacity in project work, fleet condition in a route business.
A Straight Answer
Nobody can tell you what your company is worth from revenue alone. The number comes from what the business earns, how predictable those earnings are, and how much of it depends on you being there. All three can be worked out before you talk to anyone.
Most owners find out what their company is worth when a buyer tells them. Finding out first is not complicated. It just has to happen before that conversation rather than during it.
BuiltEquity is a sell-side brokerage for trades and field-service companies. Nothing here is legal, tax or accounting advice. Your CPA and your attorney are the authority on your situation.