What Is My Business Actually Worth?

Ramzi Daklouche

Here is a number that should bother every business owner listening to this. The average business owner overestimates or underestimates the value of their business by 50 percent or more. Not 10 percent. Not 20. Fifty. And almost all of them are making the same mistake, which is looking at the wrong number on their tax return.

Claudia Luquerna

And the worst part is nobody tells them. Their CPA is optimizing for tax savings, which is the right job for a CPA, but it means the number on your return is designed to look as small as possible. That is the opposite of what you want when you are trying to figure out what a buyer would actually pay.

Ramzi Daklouche

Welcome to Transitions with Claudia and Ramzi. I am Ramzi Daklouche, Managing Partner at VR Business Sales Atlanta, and today we are going to fix this. By the end of this episode, you are going to understand exactly how buyers price businesses, what Seller’s Discretionary Earnings means, and why that number, not your net profit, is the only number that matters when it comes to your business valuation.

Claudia Luquerna

So let us start with the most common mistake. Ramzi, you sit down with business owners every week across metro Atlanta. What do they tell you when you ask them what they think their business is worth?

Ramzi Daklouche

Almost every single one of them gives me a number based on their net income. They pull out their tax return, point to the bottom line, and say something like, my business made $150,000 last year, so it is probably worth $400,000 or $500,000. And I understand why they think that. The tax return is the most official-looking financial document they have. But that bottom line number was engineered by their CPA to minimize taxes. It includes deductions, write-offs, depreciation, owner perks, and one-time expenses that have nothing to do with the actual economic benefit the business produces.

Claudia Luquerna

Give me a concrete example. What does that look like in real numbers?

Ramzi Daklouche

I had an owner come to me last year, runs a service business here in Atlanta, about $1.2 million in revenue. His tax return showed net income of roughly $80,000. He thought his business was worth maybe $200,000, possibly $250,000. He was actually a little embarrassed about the number. But when we sat down and did a proper SDE recast, meaning we added back his owner salary of $120,000, his health insurance of $24,000, his car payment and fuel that runs through the business at $18,000, a one-time equipment purchase of $35,000, some personal meals and travel of about $12,000, and depreciation of $25,000, his real SDE was $314,000. Not $80,000. Apply a 2.5 to 3x multiple for his industry, and that business was worth $785,000 to $942,000. He walked in thinking $200,000 and walked out with a realistic range close to a million dollars.

Claudia Luquerna

And that is not unusual, right? That is not an outlier case.

Ramzi Daklouche

That happens literally every month in our office. The gap between what owners think their business is worth and what it is actually worth when properly valued is almost always significant. Sometimes it is higher than they expected, sometimes lower. But it is almost never what they thought.

Claudia Luquerna

So let us make sure every listener understands this. SDE, Seller’s Discretionary Earnings, is not some made-up number that brokers use to inflate prices. It is the standard valuation metric for main street and lower middle market businesses, meaning businesses that sell for roughly $300,000 to $10 million or so. Can you break down what actually goes into the SDE calculation?

Ramzi Daklouche

Absolutely. SDE starts with your net income from the tax return, and then you add back everything that is either specific to the current owner, not essential to operations, or a non-cash accounting entry. The biggest addback for most owner-operated businesses is the owner’s total compensation, meaning their salary, payroll taxes, health insurance, and retirement contributions. After that, you look at personal expenses that run through the business like vehicles, meals, travel, cell phones, and any family members on the payroll who are not essential. Then you add back one-time or non-recurring expenses like a lawsuit settlement, a major repair, or a systems overhaul that will not happen again. And finally, non-cash charges like depreciation and amortization.

Claudia Luquerna

The way I explain it to people is this: SDE represents the total financial benefit that flows to one full-time owner-operator. It is the answer to the question, if I buy this business and run it myself, how much money ends up in my pocket each year? That is what a buyer is paying for.

Ramzi Daklouche

That is exactly right. And once you have that number, you multiply it by an industry-specific multiple that reflects the risk and growth potential of the business. For most main street businesses, that multiple ranges from 1.5x to 3.5x. Some lower middle market businesses trade at 3x to 5x or higher depending on size, growth trajectory, and customer concentration.

Claudia Luquerna

So let us talk about that multiple, because that is where a lot of the real value creation happens. A business with $400,000 in SDE at a 2x multiple is worth $800,000. The same business at a 3x multiple is worth $1.2 million. That is a $400,000 difference based entirely on the multiple. What determines whether you get a 2x or a 3x?

Ramzi Daklouche

This is one of the most important conversations I have with sellers, and honestly, it is the conversation that should happen two to three years before they are ready to sell. The factors that drive multiples up include diversified revenue, meaning no single customer represents more than 15 to 20 percent of your revenue. Recurring or contractual revenue. A management team that can operate without the owner. Clean, well-documented financials. A long-term lease or owned real estate. Growth trajectory rather than flat or declining revenue. And industry tailwinds.

Ramzi Daklouche

The factors that push multiples down are the mirror image. Heavy owner dependency. Customer concentration. Declining revenue. Messy books. Short lease terms. Deferred maintenance on equipment or facilities. And industry headwinds.

Claudia Luquerna

And here is the part that I think is really critical for anyone listening who is not planning to sell tomorrow but might be thinking about it in two or three or five years. Every single one of those factors is something you can actively improve. You can start delegating. You can diversify your customer base. You can lock in a longer lease. You can clean up your books. Those are not overnight fixes, but with 18 to 24 months of focused work, you can meaningfully move your multiple.

Ramzi Daklouche

Which is exactly why the best time to get a valuation is before you need one. A valuation is not a commitment to sell. It is information. And information is how you make the kind of strategic decisions that can be worth hundreds of thousands of dollars at exit.

Claudia Luquerna

Let us bring this home to Atlanta specifically, because market conditions affect multiples too. What are you seeing in the metro Atlanta M&A market right now?

Ramzi Daklouche

Atlanta is one of the strongest small business M&A markets in the Southeast. We are adding 60,000 to 70,000 people per year to the metro area. That population growth drives demand across almost every service industry, from HVAC and plumbing to staffing agencies to medical practices to restaurants. We have a diverse economy, a deep pool of qualified buyers including both first-time individual buyers and institutional acquirers, and relatively business-friendly regulations compared to other major metros.

Ramzi Daklouche

What that means practically is that well-prepared businesses in the $500,000 to $10 million range are selling at healthy multiples and within reasonable timelines. But here is the caveat: the market favors sellers right now, and that window is a function of interest rates, SBA policy, buyer sentiment, and economic cycles. All of those things can shift. The owners who are positioning themselves now are the ones who will capture the premium when they are ready.

Claudia Luquerna

So if you are an owner listening to this and you have never had a professional SDE-based valuation of your business, what is the first step?

Ramzi Daklouche

The first step costs nothing and commits you to nothing. At VR Business Sales Atlanta, we provide complimentary business valuations for owners across metro Atlanta. No pitch, no pressure. You walk away with your real number, an understanding of what drives it, and a clear picture of what it would take to get to where you want to be. If you are interested, you can reach us at vrbizworld.com, connect with me on LinkedIn, or just send me a direct message and say I heard the podcast. That is all it takes.

Claudia Luquerna

And next week on Transitions with Claudia and Ramzi, we are going to talk about something that surprises most business owners: why half of deals that go under a Letter of Intent never actually close. We are going to break down the five most common reasons deals die and what you can do to prevent every single one of them. You do not want to miss that one.

Ramzi Daklouche

Thanks for listening. If this episode was useful, share it with a business owner who needs to hear it. We will see you next Tuesday.