What Your Business Is Actually Worth

There's a number in your head. It's the number you think your business is worth. And I can say with pretty high confidence that it's wrong.

I don't mean it's a little off. I mean it's probably not even in the right ballpark. Most business owners dramatically overestimate what their company would sell for. Not because they're delusional, but because they're calculating value based on the wrong inputs. They look at their revenue. They look at how hard they've worked. They think about what they'd need to retire comfortably. And they arrive at a number that has almost nothing to do with what a buyer would actually pay.

Here's how a buyer thinks about it. They're not paying for your effort. They're not paying for your story. They're paying for a machine that produces cash flow and can keep producing it after you leave. If the machine depends on you to run, it's not much of a machine. And the price reflects that.

The gap between what an owner thinks their business is worth and what it's actually worth is one of the most painful discoveries in business. I've watched people go through the valuation process expecting seven figures and getting back a number with one fewer zero than they hoped for. That's a gut punch. But it's better to get that gut punch now, when you can still do something about it, than on the day you're trying to sell.

So what actually drives business value? It's not as mysterious as the valuation industry makes it seem. There are basically two lenses: an income-based approach that looks at your earnings and cash flow, and a market-based approach that compares your business to similar ones that have sold recently. Both are useful. Neither will tell you the full story unless you understand the underlying drivers.

The things that make a business valuable are, in order of importance, roughly these: financial performance and predictability, how dependent the business is on the owner, the diversity of the customer base, whether the revenue is recurring or one-time, the strength of the team, the quality of the systems, the defensibility of the market position, and the overall risk profile.

Notice what's not on that list. How many hours you work. How much you care. How long you've been doing it. How good your product is. These things matter, obviously. But they're inputs, not outcomes. A buyer is looking at outcomes. Can this business make money without you? Will customers stay? Is the revenue predictable? Are there systems in place so a new owner can actually run this thing? Those are the questions that determine the price.

The single biggest value killer I see is owner dependency. If you are the business, meaning the key relationships, the institutional knowledge, the decision-making, and the day-to-day operations all run through you, then what you really have is a high-paying job with overhead. Jobs aren't sellable. Businesses are.

The data on this is striking. Businesses that score high on owner independence sell for roughly 70% more than ones where the owner is the hub of everything. That's not a marginal difference. On a business that might be worth $2 million if it were well-structured, owner dependency can cut that value to $1.2 million or less. That's $800,000 you left on the table because you didn't build systems and develop your team.

The good news is that the things that increase value are the same things that make the business better to run. Building recurring revenue means more predictable cash flow, which means less stress. Diversifying your customer base means you're not one phone call away from disaster. Documenting processes means your team can operate without you, which means you can take a vacation. Developing your people means better work gets done, and you're not the bottleneck.

In other words, building value isn't some separate project from running the business. It is running the business well. The owners who treat value building as a distinct initiative, something to think about "when it's time to sell," are the ones who end up disappointed. The ones who bake it into how they operate every day are the ones who have options.

Here's a practical way to think about it. Imagine a buyer is watching your business through a window for six months. They can see everything: how decisions get made, what happens when something goes wrong, how the team functions when you're out of the office, where the revenue comes from, how customers are retained. What would they see? Would they see a well-oiled system that produces reliable results? Or would they see one overworked person holding the whole thing together with duct tape and willpower?

That mental exercise is more useful than any valuation formula. Because it forces you to see your business the way a buyer sees it, which is also the way an honest operator should see it.

If the honest answer is that things would fall apart without you, don't panic. That's fixable. It just takes time and intention. Start by getting an actual valuation done, not a guess, a real diagnostic. See where you stand. Identify the biggest gaps. Then work on them systematically. Build the recurring revenue. Diversify the client base. Document the processes. Develop the team. Reduce the risk.

You probably can't fix everything in six months. But you can make meaningful progress in twelve. And in twenty-four months, you can have a business that's worth dramatically more than it is today. Not because you grew revenue, although you might. Because you built something a buyer can see themselves running.

That's the real asset. Not what the business earns, but what it earns without you.