How Does a Business Valuation Work?

A business valuation works by normalizing your financials to find true owner earnings (SDE or EBITDA), then applying valuation methods — most commonly a market approach using multiples from comparable sold businesses, plus income and asset approaches — to arrive at a defensible estimate of what your business would sell for. For most small businesses, value lands in the range of roughly 2x–3.5x SDE; the Q2 2026 national average multiple was 2.65x.

Step 1: Normalize the financials

The starting point isn't your tax return's bottom line — it's what the business truly generates for an owner. A valuation professional recasts the financials by adding back owner salary and benefits, one-time expenses, and discretionary spending. The result is Seller's Discretionary Earnings (SDE) for owner-operated businesses, or adjusted EBITDA for larger companies with a management layer. Clean books make this step credible; messy books make every later number arguable.

Step 2: Apply the three valuation approaches

• Market approach. What have comparable businesses actually sold for? Databases of completed transactions provide multiples by industry and size — this is usually the primary method for Main Street businesses.

• Income approach. What are the future earnings worth today, given the risk of achieving them? This carries more weight for larger or fast-growing companies.

• Asset approach. What would the equipment, inventory, and other assets bring? This sets a floor, and it matters most for asset-heavy businesses — which is where a separate USPAP machinery & equipment appraisal comes in.

Step 3: Adjust for the specific business

Two businesses with identical earnings can be worth very different amounts. Factors that move the multiple up or down include owner dependence (can it run without you?), customer concentration, recurring vs. project revenue, growth trend, quality of staff and systems, lease terms, and industry outlook. This is where valuation stops being arithmetic and becomes judgment.

Broker opinion of value vs. certified business valuation

• A broker opinion of value (BOV) estimates a likely sale price using market comps. It's the right tool when you're deciding whether and when to sell. At Zion, this initial pricing consultation is free and confidential.

• A certified business valuation is a formal, documented report prepared under professional standards by a credentialed appraiser. You need one when the number has to hold up to a third party: SBA lenders, partner buyouts, divorce, estate and gift tax planning, or litigation. Zion provides certified valuations and USPAP-compliant machinery & equipment appraisals as standalone paid engagements — whether or not you ever list the business.

How long does it take and what does it cost?

A broker opinion of value typically takes a few days once financials are in hand. A certified valuation usually runs two to four weeks depending on the complexity of the business and the standard of value required, and is priced as a flat professional fee agreed up front — far less than the cost of mispricing a sale or losing a dispute over an unsupported number.

Frequently asked questions

What documents do I need for a valuation?

Typically three years of financial statements and tax returns, a current interim P&L and balance sheet, an equipment list, lease terms, and a note on any one-time or personal expenses run through the business.

Is a valuation the same as my asking price?

No — it's the evidence behind it. Overpriced listings sit; underpriced ones leave money on the table. A valuation anchors the price buyers and their lenders will accept.

Will anyone find out I had my business valued?

No. A valuation is a confidential engagement between you and the appraiser. Many owners get one years before they ever plan to sell, as a baseline for exit planning.

Wondering what your business is actually worth? Try the free valuation calculator for a rough range, or start with a free, confidential consultation — and ask about a certified valuation if you need a number that stands up to lenders, partners, or courts.

Industries we sell: HVAC, plumbing and electrical · roofing · landscaping · window cleaning · medical billing · retail stores

Want a number right now? Try the free Utah business valuation calculator for a market value range in 30 seconds, no sign-up. Or start with a free confidential valuation. Utah business broker serving sellers statewide