Why Understanding Your Value Matters
Whether you’re preparing for retirement, thinking about selling in a few years, or simply planning ahead, knowing your business’s market value is a crucial first step.
A clear value estimate allows you to:
- Understand your strongest financial drivers
- Plan your exit timeline more confidently
- Start positioning for a better outcome—now, not later
And while a full valuation report has its place, most owners can get within range in just a few minutes.
Step 1: Normalize Your Financials
Buyers aren’t just looking at your net profit—they want to know how much discretionary cash flow the business generates.
To calculate your Seller’s Discretionary Earnings (SDE):
- Start with your net profit
- Add back your salary and owner perks (car, phone, insurance, etc.)
- Add back any one-time expenses (legal fees, new HVAC, etc.)
- Add back depreciation and amortization
Example:
Line Item | Amount |
Net Profit | $180,000 |
Owner Salary & Perks | $90,000 |
One-Time Expenses | $10,000 |
Depreciation | $20,000 |
SDE | $300,000 |
This is the number buyers use as a baseline for valuing your business.
Step 2: Apply the Right Market Multiple
Once you’ve calculated your SDE, multiply it by a market-based multiple to estimate value. For most small businesses in Colorado, that multiple will range from 2.0× to 3.5×, depending on the industry and buyer demand.
Here are typical 2025 multiples we see across the state:
Industry | Common Range |
Specialty Trades (HVAC, Electrical, Plumbing) | 2.5× – 3.5× SDE |
Professional Services | 2.0× – 3.0× SDE |
Manufacturing / Fabrication | 2.8× – 3.8× SDE |
Restaurants / Hospitality | 1.5× – 2.5× SDE |
💡 Rule of thumb: Clean books, consistent profits, and a well-run operation generally land you in the higher end of the range.
Step 3: Adjust for Risk & Opportunity
Multiples are just starting points. Most buyers make real-world adjustments based on risk factors and growth potential.
Here’s how different factors may impact your final value:
Factor | Impact |
One customer = >30% of sales | –0.3× to –0.5× |
Written SOPs + solid second-in-command | +0.2× to +0.3× |
3+ years of 10–15% growth | +0.2× |
Owner dependency (everything runs through you) | –0.3× |
Sample Scenario
Business: Commercial electrical contractor
SDE: $400,000
Industry multiple: 3.2×
Risks/bonuses:
- Top customer = 40% of sales (–0.4×)
- Documented SOPs (+0.3×)
Adjusted multiple: 3.1×
Estimated value: $400,000 × 3.1 = $1.24 million
If that owner reduced customer concentration to below 25%, they could see value increase by over $100,000.
Three Common Mistakes That Hurt Value
- Messy financials – Inconsistent or unclear bookkeeping reduces trust (and price).
- Deferred maintenance – Unaddressed repairs are red flags and negotiation points.
- No transition plan – If the business can’t function without you, the value drops.
Ready for a Professional Opinion?
At LevelStar, we offer complimentary, confidential market assessments for Colorado business owners.
You’ll receive:
- A valuation estimate based on real comps
- A breakdown of value drivers and risks
- Three clear actions you can take to improve your outcome
📍 Based in Colorado. Focused on Colorado businesses.
👉 Request your no-cost consultation: levelstar.com/consulting
Accurate valuation is the first step to a successful transition. Let’s start there.