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You've probably heard oversimplified rules of thumb: "3-5x EBITDA" or "0.5-2x revenue." Here's the reality—actual multiples vary dramatically by industry and are unreliable starting points at best. A company with 15% margins and flat growth might sell for 3x EBITDA, while one with 30% margins and 20% growth could command 8x or more.
The difference? Buyers pay for predictable cash flows and growth potential, not just historical numbers. A formal valuation under NACVA standards considers all the factors that create these wide variations.
*These generalizations should never be relied upon for any business decision. Actual multiples vary widely by industry, size, and specific circumstances.
Tax, estate planning
Shareholder disputes
Strategic buyers
A professional valuation will apply the correct standard for your specific purpose.
Look at your true cash flow after owner salary. That's what buyers care about—money they can take out of the business. Learn about adjusting earnings properly.
Three years of growth beats one great year. Buyers pay premiums for predictable, improving performance.
Check industry data, but remember—your specific circumstances create or destroy value beyond the averages. See current market multiples.
These quick checks give you a rough sense, but you need a professional valuation for any decisions involving real money. The difference between a quick estimate and proper valuation can easily be six figures. Rules of thumb and online calculators cannot substitute for professional valuation and may result in significant financial losses if relied upon for business decisions.
Every buyer is asking one question: "How confident can I be that this business will keep making money?" Here are the six factors that answer that question:
Strong margins that improve over time. Buyers pay premiums for businesses that get more profitable, not just bigger.
Recurring revenue, long-term contracts, or loyal customers who keep coming back. Predictable income commands higher multiples.
No single customer over 15% of revenue. Diverse customer base means less risk if someone leaves. Customer concentration risk is a critical factor—reliance on few customers typically reduces value.
Key people who can run operations, serve customers, and drive sales. Management depth reduces buyer risk.
Something that makes you hard to replace—specialized expertise, long relationships, or unique capabilities.
Audited financials, documented processes, and compliance with regulations. Clean books speed deals and reduce risk. Quality of earnings adjustments normalize EBITDA for accurate valuation.
The ultimate test: Can your business run profitably for three months without you? If yes, you've got something valuable. If no, you've got a job, not a sellable asset. Remember: The ultimate test isn't what formulas suggest—it's what a qualified buyer will actually pay after thorough due diligence.
CVA-credentialed analysts follow NACVA Professional Standards—no shortcuts, no guesswork. Here are the three approaches every formal valuation considers:
A specific value range with reasoning. No vague estimates—you'll know what your business is worth and why.
All calculations, assumptions, and data sources. You'll see exactly how we arrived at the value.
The key findings in language you can share with advisors, partners, or potential buyers.
Follow-up calls to discuss the results and answer questions about next steps.
Different engagement types (Conclusion of Value, Summary Report, Detailed Report) provide varying levels of detail and documentation based on your specific needs and applicable standards.
Having been COO of a 100-person manufacturing company, I know what really matters in manufacturing valuations. It's not just the financial statements—it's the operational details that create or destroy value:
Not just book value—actual condition, remaining useful life, and replacement costs. Modern equipment commands premiums.
Room to grow without major capital investment increases value. Maxed-out facilities need expansion plans.
ISO certifications, documented processes, and quality metrics. Buyers pay for predictable output.
Single-source suppliers, long lead times, or material volatility reduce value. Diversification pays.
Specialized skills that are hard to replace create risk. Cross-training and documentation mitigate this.
Clean environmental record and up-to-date permits. Environmental issues can kill deals fast.
Preventive maintenance records and equipment history. Well-maintained facilities avoid nasty surprises.
Not all revenue is equal. High-margin products with barriers to entry drive higher valuations.
Lean practices, waste reduction, and continuous improvement. Efficient operations translate to higher margins.
Modern ERP systems, automated processes, and data integration. Technology drives competitiveness.
The best manufacturing valuations combine financial analysis with operational due diligence. Having run operations myself, I know which operational factors truly impact value and which are just nice-to-haves. Learn more in our manufacturing valuation guide.
Online calculators and rules of thumb are educational tools only. They cannot account for company-specific factors, market conditions, or the nuanced analysis required by professional standards. For decisions involving significant financial implications, always engage a credentialed valuation professional.
Work with NACVA-credentialed professionals (CVA, MAFF) and understand real business operations. Get the clarity you need to make confident decisions about your most valuable asset.