Lesson B202.9 · Business Finance 202: Build a Business Worth Buying
What your business is worth and how to raise it
6-minute read · Figures checked October 2026
Photo: Andrey Matveev / Pexels, Pexels License
The short answer
Your business is worth a range, not a single number: documented earnings times the multiples similar businesses actually sell for. Most small shops are priced on seller's discretionary earnings (SDE) and larger ones on EBITDA. Where you land in the range depends on risk: how much rides on you and on one or two customers, how clean the books are, and what shape the equipment is in. You raise value by raising documented earnings and lowering those risks.
Start with documented earnings
Value starts with last year's earnings, figured the way B202.1 showed: SDE for an owner-run business, EBITDA when a buyer would hire a manager. Use more than one year if you have it. Buyers look at the trend, and a single great year followed by a flat one raises questions.
Only documented earnings count. Every add-back needs the invoice, the payroll record or the statement that proves it, plus a reason a new owner won't pay it again. Buyers, their lenders and their accountants test each one. An add-back that comes out lowers the price by that amount times the multiple, so a missing receipt can cost more than the expense ever did.
Income that never reached the books or the tax return can't be counted at all. A buyer can only pay for earnings a lender can see.
Turn earnings into a range
Published reference points from B202.1: service businesses sold on BizBuySell from 2021 to 2025 went for a median 2.38 times SDE, and all businesses sold there in the second quarter of 2026 averaged about 2.7 times cash flow. Bigger deals priced on EBITDA run higher; the IBBA reported about 5.8 times EBITDA for deals of $5–50 million.
Example (made-up numbers, not a price guide). Ray's two-truck shop has $155,000 of documented SDE.
| Case | SDE | At 2.38 times | At 2.7 times |
|---|---|---|---|
| All add-backs proven | $155,000 | $368,900 | $418,500 |
| $12,000 of add-backs struck for lack of proof | $143,000 | $340,340 | $386,100 |
Swipe the table sideways to see every column.
Roughly $369,000 to $419,000 is a starting range for a conversation, not a price. Real sales land above and below these reference points: a median means half the service businesses sold for less. In this example, $12,000 of add-backs without paper costs about $28,560 to $32,400 of price.
Working capital (receivables and materials, less bills due) needs a plan too. Buyers usually expect a normal amount of materials to stay with the business so it can keep running. The rest varies: in many small asset sales the seller keeps the cash and receivables and pays the bills, while larger deals may set a target level and adjust the price if closing comes in above or below it. In a seasonal business, the normal level depends on the month you close, so agree on the method early, in writing.
What moves value up or down
M&A advisers point to the same short list again and again.
| Factor | Helps value | Hurts value |
|---|---|---|
| Customer mix | No customer above about 10%–15% of sales | One customer at a fifth of sales |
| Recurring work | Signed agreements that renew | All one-time jobs |
| Owner dependence | Foremen and an office that run the work | Owner estimates and approves everything |
| Books | Closed monthly, tied to tax returns | Catch-up entries, income off the books |
| Safety record | Low experience mod, written safety program | Recent claims, no records |
| Equipment | Maintenance logs and a replacement plan | Worn fleet, deferred repairs |
| Trend | Steady or rising earnings | Shrinking sales |
| People and paper | Crews who stay, written procedures, assignable contracts | Turnover every season, handshake deals |
Recurring maintenance work can be valued at a higher multiple than one-time work, and buyers ask about the safety record early. Each row is something you can work on this year, and each one also makes the business easier to run whether or not you ever sell.
When you need a formal number
A spreadsheet range is a starting point. When the stakes are real, such as a sale, a partner buy-out, an estate plan or a buy-sell price, hire a business valuation professional for a written opinion of value.
Buyers check your numbers their own way. Many hire accountants for a quality of earnings report, which tests whether your earnings are real and likely to repeat. Under current SBA rules, as lenders summarize them, every SBA-financed change of ownership needs a business valuation, and a quality of earnings report is required when a new owner buys the business for $3 million or more. Buyers often order one at smaller prices too. Some sellers order their own first, to find and fix problems before a buyer does.
Then work through the Buyer-Ready checklist (npmca.org/learn/buyer-ready-checklist), one item at a time.
Your Move
Do this week
- Start from last year's SDE (B202.1), with proof for every add-back.
- Enter it in the Valuation baseline tool and multiply by the reference points above to get a starting range.
- Mark each row of the value table as helps, hurts or neutral for your business.
- Pick three value builders you can move in the next 12 months and put a name and a date on each.
Log it: Valuation range and three value builders.
Common questions
How much is a pavement maintenance business worth?
There's no single answer. Value is documented earnings times a multiple, and the multiple depends on size, risk and who's buying. Market reports put service businesses at a median of about 2.4 times SDE, with bigger deals priced higher on EBITDA.
Is my equipment added on top of the price?
Usually the equipment needed to run the business is part of the price, not added on top. Ask your adviser how extra or idle equipment and real estate are handled.
Do I need a quality of earnings report?
If an SBA-financed buyer's price is $3 million or more, the lender requires one, and many buyers order one at smaller prices. Ordering your own before you sell can surface problems while you still have time to fix them.
Watch out for
- An opinion of value that comes without the math behind it.
- Counting the same dollar twice, such as adding back owner draws that were never an expense.
- Valuing the business on what it "should" earn instead of what the books show it did earn.
- Paying for a formal valuation before the books are clean enough to support it.
The National Pavement Maintenance Contractors Association (NPMCA) publishes this lesson. NPMCA's data affiliate may earn fees from private-equity introductions. The lesson above is the same either way.
Free help
- America's SBDC: free one-on-one business consulting. Find your SBDC
- SCORE: free mentoring from experienced business owners. score.org
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- BizBuySell: Insight Report, second quarter 2026
- BizBuySell: Service business valuation benchmarks
- BizBuySell: Cash flow, SDE and EBITDA calculator
- BizBuySell: Working capital calculator
- BizBuySell: What assets are typically included in an asset sale
- IBBA: Market Pulse, second quarter 2026 highlights
- OffDeal: How buyers assess risk when buying an HVAC business
- Benchmark International: Building a contracting business to sell
- Pioneer Capital Advisory: SBA expansion and acquisition rules under SOP 50 10 8.1
- Doeren Mayhew: SOP 50 10 8.1: what SBA lenders should be thinking about
- America's SBDC: Find your SBDC; SCORE: score.org
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