10 frequently asked questions about business valuation. Direct answers from the WETYR research team.
How do I calculate EBITDA?
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Add back owner discretionary expenses to get adjusted EBITDA, which is the basis for M&A valuation. SDE adds back owner salary too, used for owner-operator businesses under $2M EBITDA. Document each add-back.
What multiple will my business sell for?
Service businesses: 2-6x EBITDA. SaaS: 3-15x ARR. HVAC/plumbing: 3-8x EBITDA. Accounting firms: 1-1.4x revenue or 4-8x EBITDA. Multiple depends on recurring revenue, growth rate, customer concentration, and team strength. Your adjusted earnings, after add-backs, are the base the multiple is applied to.
What is the Rule of 40?
SaaS valuation rule: growth rate + EBITDA margin should exceed 40%. Companies above 40 trade at premium multiples; below 40 trade at discount. Drives high-growth SaaS companies to balance growth and profitability. It matters most for SaaS buyers, and less for service businesses valued on EBITDA.
What drives multiple up vs down?
Up: recurring revenue, low customer concentration, growth above 10%, low owner dependency, documented systems, clean financials. Down: customer concentration, owner dependency, declining revenue, tribal knowledge, messy books. Most of these can be improved in the 12 to 24 months before a sale, which is why preparation is the highest-return step an owner can take.
How accurate are online business valuation calculators?
Only roughly, and mainly for businesses with standard profiles. They miss niche-specific factors and adjustments. Free calculators are a starting point; a professional valuation costs more but is built on your actual books and adjustments. Use one to frame expectations, then validate the number with a valuation built on your adjusted earnings.
EBITDA vs SDE: which should I use?
SDE for businesses under $2M EBITDA where the owner is also the primary operator (SDE = EBITDA + owner comp + perks). EBITDA for businesses over $2M where the owner has stepped back. The sub-$2M market quotes SDE multiples; above $2M quotes EBITDA multiples.
Should I get a professional valuation?
Yes if: planning to sell within 12-24 months, raising capital, transferring ownership to family, ESOP transactions, divorce or estate planning. Cost: $5K-$25K from independent valuation firms. For a sale, a valuation built on your adjusted earnings gives you an anchor before you talk to any buyer.
How does industry affect multiple?
Significantly. SaaS (3-15x ARR), HVAC (3-8x EBITDA), agencies (4-7x retainer-heavy), restaurants (1-3x SDE), professional services (1.0-1.4x revenue). Industry sets the baseline; company-specific factors set the premium or discount within the range. Recurring revenue and low owner dependence move a business toward the top of its range.
What is a discounted cash flow (DCF) valuation?
Methodology that calculates business value by discounting projected cash flows back to present value using a required rate of return. More common for stable cash-flow businesses, less common for owner-operator small businesses where multiple methods are simpler. Small business buyers usually rely on earnings multiples instead.
How does growth rate impact valuation?
Significantly. SaaS growing at 50%+ trades at premium multiples. Flat or declining businesses trade at discounts. A business growing steadily year over year usually earns a meaningfully higher multiple than a flat business in the same industry. Buyers want growth that is documented and repeatable, not a single strong year.
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Last updated: 2026-04-28
Valuation: Common Questions Answered
This FAQ collection answers the questions WETYR receives most often about valuation. Each answer is written by operators who have lived the work - not lifted from generic advisor templates. Owners and operators who read these FAQs end up walking into their next conversation with WETYR (or with any advisor) substantially better prepared, which is the goal. Better-prepared clients reach better outcomes. We give the answers away because that compounds trust.
The questions cover the practical side of valuation - pricing, timeline, who-does-what, decision frameworks, and the trade-offs that aren't covered in generic content. If your specific question isn't on this page, the right next step is either the relevant long-form guide or a direct call with our team. We respond to every inbound inquiry within one business day.
When To Engage An Advisor
The general rule for valuation: engage an advisor 12-24 months before the transaction window if you have flexibility, or as soon as possible if the window is shorter. Owners who engage 6+ months out routinely receive premium offers; owners who engage 30 days out routinely accept whatever the buyer puts on the table. The pre-engagement diagnostic is where most of the leverage is created.
For valuation-specific questions, WETYR's role is narrower than an advisor's. WETYR can introduce owners to registry buyers whose buy box fits, free to owners, help buyers find off-market targets, or buy a business directly for its own account. If you want someone to run a sale process or negotiate for you, hire your own licensed broker or advisor. The free introductory call is the cleanest way to see whether any of WETYR's options fit your situation.
Authoritative Sources & Further Reading
WETYR relies on primary sources, regulators, and industry data providers for its research and education. The references below are the same sources our research team uses when benchmarking multiples, modeling acquisitions WETYR makes for its own account, and stress-testing assumptions. We encourage every owner, buyer, and operator to verify any data point that materially affects their decision against the underlying primary source.
Primary Federal Sources
- U.S. SBA - 7(a) Loan Program for acquisition financing eligibility, terms, and lender list.
- SEC EDGAR for public-company comparables, 10-K disclosures, and recent strategic acquirer filings.
- IRS - Sale of a Business on Section 1060 asset-allocation reporting and tax treatment of asset vs stock sales.
- U.S. Bureau of Labor Statistics - Industries at a Glance for wage, employment, and growth data by NAICS code.
- U.S. Census Economic Census for industry size, firm counts, and revenue distributions.
- Federal Reserve Economic Data for prevailing rate environment underwriting.
Standards & Reference Bodies
- AICPA for Quality of Earnings methodology and CPA standards governing transaction-related financial work.
- FINRA Rules and Guidance for understanding when a transaction crosses into broker-dealer territory.
- NACVA business valuation credentialing body and standards (CVA designation).
- USPAP - Uniform Standards of Professional Appraisal Practice for valuation engagement standards.
- Investopedia - EBITDA reference page for definitional alignment with our glossary.
- Harvard Business Review - Mergers and Acquisitions archive on integration and post-close value creation.
For deeper transaction-specific data, the GF Data and PitchBook private-company transaction databases publish quarterly multiple ranges by industry size band that we cross-reference against our own pipeline benchmarks. Owners considering a sale should also review the Pepperdine Private Capital Markets Report (free, annual) for current cost-of-capital and lender appetite data across the lower middle market. Buyers underwriting search-fund or holdco theses commonly pair Stanford GSB's Search Fund Study with the IBBA Market Pulse report, which tracks multiples for sub-$50M transactions quarterly. None of these sources replace deal-specific advice from your own attorney, CPA or advisor, but they give owners and operators the same reference points professional acquirers are using on the other side of the table.
Related WETYR Resources
Every WETYR resource connects to a practical next step. Whether you are diagnosing readiness, modeling a number, or preparing for a specific transaction phase, the resources below cover the most common owner and operator workflows. All tools are free; all guides are operator-written; every conversation with WETYR starts in confidence.
Engagement Pillars
Decision Tools
Operator-Written
Glossary & FAQ
Checklists & Templates
Niche Coverage
If you are not sure where to start, the Exit Readiness Score takes about four minutes and produces a one-page diagnostic on the value drivers most likely to compress your multiple. From there the natural next step is either a long-form guide covering your specific situation, a focused glossary term lookup, or a confidential introductory call with our team to see whether a buyer introduction, buyer sourcing, or a direct offer from WETYR as a buyer is a fit. Our team responds to every inbound inquiry within one business day.
WETYR provides business consulting, marketing to find acquisition targets for buyers, and introductions between business owners and buyers. WETYR is not a business broker, M&A advisor, investment bank, registered broker-dealer, FINRA member, SEC-registered investment adviser, attorney, or CPA. WETYR does not negotiate for either side; price and terms are set by the owner and buyer with their own advisors. After an introduction, owners and buyers deal directly with their own attorney, CPA and, if they choose, their own licensed broker or advisor. Transactions involving real property or securities require appropriately licensed professionals. Information provided on this website is for general informational purposes only and is not legal, tax, accounting, or investment advice. Consult your own qualified professionals before making any business or financial decision. Past results do not guarantee future outcomes.