Almost every owner who thinks about selling has a number in mind. Sometimes it came from a friend at a trade association lunch. Sometimes it is what a competitor supposedly sold for a few years ago. Sometimes it is simply the figure the owner needs to retire comfortably. None of those is what a buyer will pay, and the gap between the number in an owner's head and the number a buyer can support is where many sales go wrong.
That is why the first conversation about selling a business should be about value, before anyone talks to a buyer.
1. Value starts with earnings a buyer can verify
Most privately held businesses in the lower middle market are valued on their earnings: EBITDA for larger companies, seller's discretionary earnings for smaller owner-run ones. The starting point is not the profit on the tax return. It is the profit a buyer can confirm, adjusted for expenses that will not continue after the sale, such as an owner's above-market salary or a one-time legal cost.
Those adjustments matter. A buyer will accept some of them and challenge others. An owner who claims add-backs that will not survive the buyer's review starts negotiations from a number that is going to fall.
2. The multiple depends on risk, not on a rumor
Buyers apply a multiple to those earnings, and the multiple reflects how much risk they see. Two companies with the same earnings can sell for very different prices. The questions a buyer asks are predictable: Does the business depend on one customer or one supplier? Would it run without the owner? Is there a management team? Are the earnings steady, or did one good year inflate them?
This is why a competitor's sale price is a poor guide. You rarely know the terms, the earnings behind it, or what the buyer saw.
3. Price and terms are two halves of the same answer
An offer is more than a number. Part of the price may be paid at closing, part through a seller note paid over time, part through an earnout tied to future results, and part through equity the owner keeps. A higher headline price with more of it deferred or at risk can be worth less than a lower price paid in cash. Understanding value means understanding which terms are likely for a business like yours.
4. Your reasons for selling shape the right buyer
The value conversation is also about the owner. Why do you want to sell? How long do you want to stay involved afterward? What matters to you about your employees and customers? An owner who wants to step away in six months will look for a different buyer, and accept different terms, than one who wants to stay on and grow with a new partner.
5. An honest number makes everything that follows easier
Owners who settle the value question early make better decisions later: when to go to market, which buyers to approach, and which offers deserve serious attention. Owners who skip it often spend months with a buyer before discovering they were never going to agree on price.
The takeaway
The most useful number in a sale is not the one you hope for. It is the one a qualified buyer can support with your earnings, your customers and your team, and it is worth knowing before any buyer asks.
