The Basics
How a Small Business Gets Valued
Most small businesses are valued as a multiple of what they earn. The earnings are usually seller's discretionary earnings or EBITDA. The multiple is where the judgment comes in. Buyers and their lenders move it up or down based on how risky those earnings look once you are gone.
Things that commonly move the multiple:
- How steady and diverse the revenue is
- How concentrated the customers are
- How clean and current the books are
- Whether the processes are written down
- How much of the work depends on the owner
Your advisors handle the math. The last two items are the ones you can work on yourself, in the months before you list.
Key-Person Risk
Why Owner Dependence Comes Up in Every Deal
If the follow-up, the scheduling, the customer relationships and the weekly numbers all run through you, the buyer is not just buying a business. They are buying your calendar, and that calendar leaves at closing.
Buyers see that as risk. They may account for it in the price, the terms, an earnout, or a longer transition period where you stay on. The diligence question is simple: "Who does this when you are gone?"
Digital Employees
Where Digital Employees Fit
A digital employee is an AI system that does one defined job inside your business, works in the tools you already use, and reports to you or your team. Owners usually hand off these roles first:
Lead Follow-Up and Intake
Every inquiry answered and followed up the same day.
Scheduling and Coordination
Appointments, crews, vendors and reminders run on a written process.
Reporting
The weekly numbers pulled and summarized without you.
Customer and Vendor Messages
Routine updates sent on time, with anything unusual routed to a person.
Each one runs from written instructions. Those instructions become part of the operating documentation a buyer can review. The point is not a lower headcount. It is a business that keeps running the way it does today when you step out.
I run my own construction, rental and consulting businesses this way. I try it on me first, then build the same thing for other owners.
Alongside Your Advisors
What This Does Not Do
Shepard Consulting is not a broker, valuation firm or financial advisor. We do not appraise businesses or promise a sale price. Your exit planner and broker shape the deal. This work happens inside your operations so the business is ready when the deal is.
Free Audit
Start With the Owner Hours Audit
12 questions, about 10 minutes. Your Owner-Out Map shows which of your weekly hours a digital employee can take, which need a person, and which only you can do. It is informational, not a valuation.
Start Your Free Owner Hours Audit
12 quick questions, about 10 minutes. You get an Owner-Out Map: which of your weekly hours a digital employee can take, which need a person, and which only you can do.
Providing your phone is optional. If you include it, you consent to receive follow-up calls or texts from Shepard Consulting about your audit. Message and data rates may apply. Reply STOP to opt out. Your map is always delivered by email.
🔒 Your info is secure and will never be shared.
By submitting, you agree to our Privacy Policy and Terms. Your map is AI-generated and informational only. It is not a valuation. See Disclaimers.
Common Questions
Frequently Asked Questions
How is a small business valued for sale?
Most are valued as a multiple of earnings, usually seller's discretionary earnings or EBITDA. The multiple depends on how risky buyers think those earnings are, including how much the business depends on the owner. A broker or valuation professional can give you a number for your business.
What is the difference between SDE and EBITDA?
Seller's discretionary earnings, or SDE, is what the business earned with one owner's salary and personal costs added back in. EBITDA is earnings before interest, taxes, depreciation and amortization, and it assumes a paid manager is already in place, so that cost stays in the number. Smaller Main Street sales are usually discussed in SDE, larger deals in EBITDA. Your CPA can tell you which one your market uses.
What are add-backs?
Expenses on your books that a new owner would not have: your salary above what a replacement manager costs, the personal vehicle or family travel run through the business, one-time events like a lawsuit. You list each one, and the buyer tests the list in diligence, so each one needs receipts. SCORE's guide to cleaning up your financials before a sale walks through the documentation buyers expect.
How do buyers decide the multiple?
It starts with comparables: what businesses like yours, in your industry and size range, have actually sold for. Then it moves with risk. Steady, diverse revenue and written processes push it one way. Customer concentration and owner dependence push it the other. A broker or valuation professional can tell you where yours sits.
How do buyers verify the books?
Through a quality of earnings review. The buyer or their accountant checks your statements against bank records and tax returns, tests each add-back against its receipts, and reads customer revenue month by month. SCORE tells sellers to keep at least three years of records consistent, because that is typically what gets reviewed, and to have bank statements, add-back support and customer revenue reports organized before the buyer asks.
Does owner dependence lower what a business sells for?
It is one of the factors buyers weigh. When the owner holds most of the key roles, buyers often account for that risk in the price or the terms, such as an earnout or a longer transition. How much it matters depends on the business and the buyer.
Can digital employees increase my business value?
We do not promise a value increase. What digital employees do is take over roles that only the owner handles today and leave written processes behind. That gives you a better answer when a buyer asks who runs the business without you.
How long before a sale should I start?
Earlier than most owners think. SCORE's exit planning guide lays the run-up out in stages, from three to five years out down to the final 12 to 18 months, and SCORE's selling guide says the sale itself typically takes six to 18 months from decision to closing. The owner-dependence work has the longest lead time, so it is the best first move. We hand off one role at a time, and each one is supervised for its first 14 days.
Does recurring revenue change the valuation?
Buyers care how much revenue comes back without a new sale each month: contracts, subscriptions, service agreements. Predictable revenue makes the earnings look less risky, and risk is what moves a multiple. How much weight your market puts on it is a question for a broker or valuation professional. We do not promise a value increase.
Are quick valuation calculators any good?
They give you a ballpark, the way an online home estimate does. Most apply a multiple to numbers you type in, so the answer is only as good as the numbers and the assumptions behind them. For a number you can actually negotiate from, talk to a broker or a valuation professional.
Do you work with my broker or exit planner?
Yes. We work inside your operations and alongside your advisors. We do not replace them.
The timeframes above come from outside sources, not from me: the SCORE Business Exit Planning Guide, SCORE's guide to selling your business, and SCORE on cleaning up your financials before a sale. The SBA's close or sell guide covers the valuation methods and the sales agreement.
Further Reading
Does Depending on the Owner Lower What a Small Business Sells For, and Can AI Employees Help?
Why owner dependence shows up in diligence, and how handing roles to digital employees changes the answer.
If You Left for 30 Days, Would Your Business Still Run?
The roles owners hold longest, and how the Owner-Out Program hands them off one at a time.
Find Out Which Roles Still Run Through You
Start with the free audit, or skip straight to a 30-minute call.
Take the Free Owner Hours Audit →Book a Free 30-Minute Call →