Advisory · Valuation
What is it actually worth?
SDE · EBITDA · Multiples · Drivers
Every owner has a number in mind. A buyer has a different one. Valuation work closes that gap with evidence: normalized earnings, a multiple that fits the company's risk and growth, and a clear view of which drivers would move the range if you fixed them before going to market.
The service
Black Key Advisory prepares pre-transaction business valuations for privately held companies using earnings-based methods (seller's discretionary earnings and adjusted EBITDA with market multiples), supported by revenue multiples where the industry trades on revenue, and cross-checked against comparable transactions and buyer-specific synergy value. The output is a value range, not a single number, with the drivers that explain it.
Which valuation method applies to my business?
Smaller owner-operated companies are usually valued on a multiple of seller's discretionary earnings (SDE). Larger companies with a management team are valued on a multiple of adjusted EBITDA. Recurring-revenue software and some consumer brands trade on revenue multiples. Asset-heavy businesses and distressed situations use asset-based approaches. Most real valuations use more than one.
- SDE multiple
- Owner-operated companies. Earnings before the owner's compensation, benefits, interest, tax, depreciation and one-time items. Reflects what one full-time owner would take home.
- Adjusted EBITDA multiple
- Companies with a management layer. Earnings normalized for non-recurring items and market-rate management compensation.
- Revenue multiple
- High-growth SaaS and some brands, where recurring revenue quality and retention carry the value.
- Discounted cash flow
- Used as a cross-check where projections are credible and the buyer is financial rather than strategic.
- Asset-based
- Asset-heavy, licensed or real-estate-backed companies where the assets themselves carry a floor value.
- Precedent transactions
- What comparable companies actually sold for, adjusted for size, growth and timing.
What normalized earnings means
Normalized earnings restate a company's profit the way a buyer will see it: owner salary reset to a market rate, personal expenses removed, one-time costs and revenue excluded, related-party rent adjusted to market, and accounting method differences reconciled. The adjustments are called add-backs, and every one of them has to survive a buyer's quality-of-earnings review.
- 01Owner compensation and benefits above or below market
- 02Personal expenses run through the business
- 03One-time legal, litigation, relocation or launch costs
- 04Related-party rent or services not at market rate
- 05Non-recurring revenue, grants or insurance recoveries
- 06Cash versus accrual timing differences
- 07Family members on payroll who will not stay
Every add-back, with its evidence
What moves the multiple
Within an industry, the multiple a company earns is decided by risk and transferability: revenue quality and recurrence, customer concentration, dependence on the owner, margin stability, documented systems, growth trend, and the cleanliness of its books and contracts. Two companies with identical earnings can sell for very different prices because of these.
Raises the multiple
- Recurring or contracted revenue with low churn
- Diversified customer base with no single client over ten percent
- A management team that runs the business without the owner
- Three years of clean, consistent, reviewed financials
- Documented processes and transferable systems
- Growth that is explainable and continuing
- Transferable licenses, leases and key contracts
Lowers the multiple
- Owner is the top salesperson, key relationship and only decision-maker
- One customer, channel or platform carries most of the revenue
- Cash-basis books with unexplained swings
- Lease with under three years remaining and no options
- Regulatory or licensing issues unresolved at market
- Declining trend the owner cannot explain
- Pending litigation or tax exposure
Valuation · Questions
Questions owners ask
What is the difference between SDE and EBITDA?
SDE (seller's discretionary earnings) adds back one owner's full compensation and benefits to EBITDA, because the buyer of an owner-operated business will take that role. EBITDA assumes management is paid at market rate. SDE is higher than EBITDA for the same company, and SDE multiples are correspondingly lower than EBITDA multiples.
How are business valuation multiples determined?
Multiples come from comparable transactions and buyer behavior in a given industry and size range, then move up or down for the specific company's risk profile: revenue quality, concentration, owner dependence, growth and financial cleanliness. Published averages are a starting point, not a price.
Is a valuation the same as an appraisal?
No. A certified appraisal is a formal opinion of value used for tax, litigation or estate purposes and is prepared by a credentialed appraiser. A pre-transaction valuation is a market-based range prepared to inform a sale strategy. We prepare the latter and coordinate with credentialed appraisers when a formal appraisal is required.
Can I raise my valuation before selling?
Often, yes, given time. Reducing owner dependence, cleaning the financials, diversifying customers, extending the lease and documenting systems all move the multiple. That work is the subject of our exit planning service.
Know the number before anyone else does.
Notice
Black Key Holdings provides business transaction and M&A advisory services. We do not provide legal, tax, accounting, investment, securities or regulatory advice. Services and transaction structures vary by jurisdiction. Each party should retain its own qualified legal, tax, accounting and regulatory professionals. Nothing on this website constitutes an offer to sell or a solicitation of an offer to purchase any security or licensed business interest.