A buyer pays a multiple of profit, adjusted for how much of that profit survives without the owner. Recurring contracted revenue, low client concentration and documented delivery raise the multiple; dependence on you lowers it.

The starting number

Valuation generally begins with adjusted profit — earnings with owner-specific items removed and normalized. That means adding back an above-market owner salary, removing personal expenses run through the business, and subtracting the cost of hiring someone to do the work the owner currently does unpaid.

That last adjustment surprises people. If you deliver thirty hours a week and take no salary for it, a buyer subtracts the market cost of replacing you before they start. Owner-operated businesses often lose a large share of stated profit at this step.

What moves the multiple

Owner dependency. The dominant factor. A business that runs without its owner commands a substantially higher multiple than one that does not, and at the extreme there is no multiple because there is no sale. See owner dependency.

Revenue quality. Contracted recurring revenue with notice periods is worth considerably more than project revenue of the same size, because it can be forecast rather than assumed. See recurring revenue.

Client concentration. One client above fifteen to twenty percent is a single point of failure the buyer inherits. See client concentration.

Documentation and team. A delivery process someone else can run, and a team that stays, is most of what is actually being purchased.

Growth and margin. Consistent growth and healthy gross margin support the higher end of the range.

A worked example

Two firms each earn $400,000 a year in profit.

In the first, the owner sells every deal, pays herself a below-market salary, and one client provides half the revenue. A buyer adjusts profit down to about $300,000 once a real replacement salary is counted, then applies a low multiple because of the risk. Around two times gives a value of roughly $600,000.

In the second, most revenue is on annual contracts, no client is above 15 percent, and a manager runs delivery. The profit holds up under scrutiny, and a multiple of four or five gives $1.6 to $2 million. Same profit, roughly three times the price. Actual multiples depend on the industry and buyer, but the gap between the two firms is typical.

Reading a valuation honestly

The multiple quoted in any given market is a range, and where you sit in it is determined by the factors above rather than by negotiation.

The practical consequence is that valuation is built rather than argued. Two to three years of deliberate work on dependency, revenue quality and concentration moves the outcome far more than any conversation with a buyer. See how to make a business sellable.

Before working out a multiple, it is worth knowing what a buyer will discount for. The Sellability Scorecard runs the ten questions that set that discount, free, and the score usually explains more of the valuation gap than the revenue figure does.