By Aneil Persad, Business Broker · Published October 29, 2026
Value starts with earnings
Most privately held operating businesses are priced on what they reliably earn for an owner, then adjusted for risk. Two measures do most of the work:
- Seller's discretionary earnings (SDE). Pre-tax profit plus the owner's salary and benefits, interest, depreciation and amortization, and one-time or discretionary expenses. SDE shows what the business produces for one full-time owner-operator, which is why it's commonly used for smaller, owner-run businesses.
- EBITDA. Earnings before interest, taxes, depreciation and amortization, after paying a market-rate salary for management. EBITDA is commonly used for larger businesses that have a management team in place and attract investor or private equity buyers.
Buyers then apply a multiple to SDE or EBITDA. The multiple is not a fixed number for your industry: it reflects how risky and transferable the earnings look. Published rules of thumb are a starting point at best, and the factors below usually matter more.
Add-backs: what counts and what doesn't
Add-backs adjust the reported profit to show the earnings a new owner would actually get. Buyers and lenders will test every one, so each needs documentation.
- Usually accepted: the owner's salary and payroll taxes (for SDE), owner health insurance and retirement contributions, a personal vehicle or phone run through the business, and genuinely one-time costs such as a lawsuit, a relocation or a major non-recurring repair.
- Often challenged: expenses that will continue under a new owner, "cash" income that isn't on the tax returns, family members on payroll who actually do needed work, and maintenance that was deferred rather than avoided.
Realistic add-backs build trust. Inflated ones tend to fall apart in due diligence, which costs time and can reopen the price.
What moves value up or down
- Customer concentration. If one or a few customers make up a large share of revenue, a buyer is taking the risk that one of them leaves. A broad, stable customer base supports a stronger price.
- Owner dependence. If the customers, the key relationships, the pricing or the technical knowledge live with you, the business is harder to transfer. A team that can run the day-to-day, and documented processes, make it easier for a buyer to step in.
- Recurring revenue. Maintenance agreements, service contracts, subscriptions and repeat customers are more predictable than one-off project work, and buyers pay for predictability.
- Clean records. Tax returns that match the profit and loss statements, separated personal and business expenses, and clear reporting by customer, product or service line make it faster to verify earnings and easier for a lender to say yes.
- Trend and condition. Steady or growing revenue and earnings, well-maintained equipment and facilities, transferable leases, licenses and contracts, and no unresolved legal or tax issues all reduce perceived risk.
Asset sale vs. stock sale: the basics
How a deal is structured affects taxes, liabilities and what actually transfers, so it can change what a given price is worth to each side.
- Asset sale. The buyer purchases selected assets, such as equipment, inventory, customer lists, the name and goodwill, and usually not the seller's liabilities. Buyers often prefer this structure. Contracts, leases, licenses and permits may need to be assigned or re-issued.
- Stock or share sale. The buyer purchases the ownership of the company itself, which keeps its contracts, licenses and history in place, along with its liabilities. In Canada this is usually called a share sale. Sellers often prefer this structure for tax reasons.
The right structure depends on your entity type, the assets involved, contracts that can or can't be assigned, and tax rules where you are. Aneil frames the options with you early, and your attorney and CPA advise on the legal and tax consequences.
Why a confidential valuation comes first
Owners who go to market without a grounded number tend to either price too high and watch the listing go stale, or leave money on the table. A confidential valuation gives you a realistic range, shows which add-backs will hold up, and points out what you could fix before a sale, such as concentration, owner dependence or messy books, while you still have time to fix it.
It's also private. Nothing about your business is shared with anyone, and if you decide to sell, buyers see financials only after a signed NDA and after they've shown they can finance the deal.
Trinmakk Business Brokers works with owners anywhere in the U.S. and Canada, typically on deals from $250K to $10M in enterprise value. See how a sale runs, or read industry guides for trucking and logistics and self-storage.
This guide is general information, not legal, tax or financial advice. Talk to your attorney and CPA about your situation.