If you’re thinking about selling your business, the first question you need to answer is: what’s it actually worth to a buyer?
This is different from what it’s worth to you. Emotional attachment, years of hard work, and personal sacrifices don’t factor into a buyer’s calculation. Buyers are purchasing a future cash flow stream, and they’ll value your business accordingly.
Here’s how to approach the valuation process so you’re well-prepared and can negotiate from a position of strength. For a broader overview of what drives business value, see our complete guide on how much is my business worth.
Documents You Will Need
Before you begin the valuation process, gather the following documents. Having these ready will save you weeks of back-and-forth and signal to buyers and advisors that you’re a serious, well-organised seller.
Financial Statements (3-5 Years)
You need a minimum of three years of financial history, though five years is preferred. This includes:
- Profit and loss statements — showing revenue, cost of goods sold, gross margin, operating expenses, and net profit for each year. Buyers want to see trends, not just a single snapshot.
- Balance sheets — detailing assets, liabilities, and equity. This shows the financial health of the business at each year-end.
- Cash flow statements — demonstrating how cash moves through the business. Profitable businesses can still have poor cash flow, and buyers know this.
- BAS statements — your Business Activity Statements verify the revenue figures in your accounts.
- Tax returns — both business and personal (if a sole trader or partnership), confirming what was reported to the ATO.
Asset Register
A complete list of all business assets including:
- Plant and equipment with purchase dates, costs, and current book values
- Vehicles owned or leased by the business
- Technology assets — hardware, software licences, domain names
- Inventory (if applicable) with current valuation methodology
- Any property owned by the business or a related entity
Contracts and Agreements
- Customer contracts — particularly long-term or recurring agreements. These are critical to demonstrating revenue stability.
- Supplier agreements — terms, pricing, exclusivity arrangements, and renewal dates.
- Lease agreements — premises, equipment, and vehicle leases with terms, renewal options, and any change-of-control clauses.
- Staff contracts — employment agreements for all employees, including any restraint of trade clauses, commission structures, or retention arrangements.
- Partnership or shareholder agreements — if applicable, documenting ownership structure and any pre-emptive rights.
Intellectual Property Documentation
- Trademark registrations and applications
- Patent filings
- Registered designs
- Domain name ownership records
- Software licence agreements (both owned and third-party)
- Any trade secret or confidential information policies
Having these documents organised before you start not only speeds up the valuation process but also makes the due diligence phase far smoother when a buyer comes to the table.
Step 1: Understand What Buyers Are Buying
Buyers don’t buy your revenue. They buy your future profit potential, adjusted for risk. Specifically, they’re evaluating:
- How much cash will this business generate after I buy it?
- How confident am I that those cash flows will continue?
- What risks could disrupt those cash flows?
- What do I need to invest to maintain or grow the business?
Every valuation method is ultimately trying to answer these questions. Understanding what buyers look for when buying a business gives you a significant advantage in how you present your company.
Step 2: Normalise Your Financials
Before applying any valuation method, you need to normalise your financial statements. This means adjusting for:
- Owner’s salary — replace whatever you pay yourself with a market-rate salary for someone to do your job
- Personal expenses — remove car payments, phone bills, travel, meals, or other personal items run through the business
- One-off costs — legal disputes, insurance claims, equipment write-offs, COVID impacts
- Related party transactions — ensure any transactions with related entities are at market rates
- Discretionary spending — items a new owner wouldn’t need to continue
The result is your normalised EBITDA — the true earning power of the business.
Worked Example: Normalising a Construction Business
Let’s walk through a concrete example. Imagine “Coastal Builders,” a residential construction company in Southeast Queensland with $1.5 million in annual revenue.
Reported profit and loss:
| Item | Amount |
|---|---|
| Revenue | $1,500,000 |
| Materials and subcontractors | $825,000 |
| Gross profit | $675,000 |
| Staff wages (3 employees) | $240,000 |
| Owner’s salary (as reported) | $200,000 |
| Rent (yard and office) | $36,000 |
| Vehicle expenses (2 work utes + owner’s personal SUV) | $48,000 |
| Insurance | $32,000 |
| Accounting and admin | $18,000 |
| Marketing | $8,000 |
| Phone and IT | $6,000 |
| One-off legal costs (contract dispute) | $25,000 |
| Depreciation | $15,000 |
| Interest | $5,000 |
| Reported net profit | $42,000 |
At first glance, $42,000 net profit on $1.5M revenue looks thin. But the normalisation tells a different story.
Normalisation adjustments:
| Adjustment | Amount | Reason |
|---|---|---|
| Reported net profit | $42,000 | Starting point |
| Add back: depreciation | +$15,000 | Non-cash charge |
| Add back: interest | +$5,000 | Financing cost, not operational |
| Add back: owner’s reported salary | +$200,000 | Replace with market rate |
| Deduct: market-rate manager salary | -$110,000 | What you’d pay a site manager to replace the owner |
| Add back: owner’s personal SUV costs | +$18,000 | Estimated personal portion of vehicle expenses |
| Add back: one-off legal costs | +$25,000 | Non-recurring expense |
| Add back: personal travel and meals | +$8,000 | Estimated personal component |
| Normalised EBITDA | $203,000 |
The business actually generates around $200,000 in normalised EBITDA — a much more meaningful number than the $42,000 reported net profit.
Applying multiples:
Construction and trades businesses in this revenue range typically attract EBITDA multiples of 2x to 3.5x. Coastal Builders has a good local reputation, a small but loyal team, and a decent pipeline, but revenue is project-based with limited recurring income.
| Scenario | Multiple | Enterprise Value |
|---|---|---|
| Conservative | 2.5x | $507,500 |
| Mid-range | 3.0x | $609,000 |
| Optimistic | 3.5x | $710,500 |
After adding the value of owned equipment ($85,000) and deducting the vehicle loan ($30,000), the equity value range is approximately $563,000 to $766,000.
For the owner who thought the business was “only making $42,000 a year,” this is a very different picture. That’s the power of proper normalisation. For more on profit-based valuations, see our guide on business valuation based on net profit.
Step 3: Choose Your Valuation Method
EBITDA Multiple (Most Common)
Multiply your normalised EBITDA by an industry-appropriate multiple. This is how most established, profitable businesses are valued.
Example: A business earning $500,000 normalised EBITDA in manufacturing might attract a 4-5x multiple, suggesting a value of $2M-$2.5M.
Revenue Multiple
Used when EBITDA is inconsistent or growth is the primary story. Technology companies, early-stage businesses, and high-growth companies are often valued this way. Our guide on business valuation based on revenue covers this method in detail.
Discounted Cash Flow (DCF)
Projects future cash flows over 5-10 years and discounts to present value. Most rigorous but most sensitive to assumptions. Typically used for larger transactions.
Asset-Based
Sum of all business assets minus liabilities. Sets a floor value, particularly relevant for asset-heavy businesses like manufacturing, property, or mining.
Comparable Sales Method
This approach looks at what similar businesses have actually sold for in the market. It’s the same principle as using property sales data to value a house — if three similar businesses in your industry sold for 3.5x EBITDA in the past two years, that’s a strong data point for your valuation.
How to research comparable sales:
- Business broker databases — many brokers publish sold listings or can share anonymised data on completed transactions in your sector.
- Industry associations — some sectors publish benchmarking reports that include transaction data.
- Public company transactions — while larger, ASX-listed transactions are reported publicly and can provide directional guidance on multiples.
- Your advisor’s deal experience — experienced corporate advisors have access to private transaction data and can draw on their own deal history.
- Online marketplaces — platforms like Miro Market and others list businesses for sale, giving you a sense of asking prices (though asking prices often differ from final sale prices).
Limitations to be aware of:
- No two businesses are identical, so comparables are always approximate
- Small business transactions are rarely reported publicly, making data scarce
- Reported prices may not include earnouts, vendor finance, or other deal structure elements that affect the true value
- Market conditions at the time of the comparable sale may differ from today
Despite these limitations, the comparable sales method is valuable as a reality check. If your EBITDA multiple analysis says your business is worth $2M, but similar businesses are consistently selling for $1.2M-$1.5M, that gap needs explaining.
How to Value Goodwill
Goodwill is one of the most misunderstood concepts in business valuation. It represents the intangible value of a business above and beyond its identifiable tangible assets — essentially, what makes the business worth more than the sum of its parts.
What Goodwill Includes
Goodwill captures value from:
- Customer relationships — a loyal customer base that generates repeat business
- Brand reputation — the trust, recognition, and market position your brand has built over years
- Assembled workforce — a skilled, trained team that would be costly and time-consuming to rebuild
- Systems and processes — established workflows, SOPs, and operational infrastructure
- Market position — your standing in the competitive landscape, including any niche dominance
- Supplier relationships — favourable terms, priority access, or exclusive arrangements
How Goodwill Is Calculated
In practice, goodwill is calculated as the residual — the difference between the total business value (determined by EBITDA multiple or another method) and the fair market value of identifiable net assets.
Example using Coastal Builders:
| Component | Amount |
|---|---|
| Total enterprise value (at 3.0x) | $609,000 |
| Less: tangible net assets (equipment minus debt) | $55,000 |
| Goodwill | $554,000 |
In this case, $554,000 of the $609,000 value is goodwill — the premium a buyer pays for the earning power, reputation, and relationships of the business rather than its physical assets.
Why Goodwill Matters for Sellers
Understanding goodwill is important because:
- It demonstrates to buyers that your business has value beyond its balance sheet
- It helps justify your asking price in negotiations
- It highlights the intangible assets you should document and present to buyers
- For tax purposes, the allocation between goodwill and other assets affects both buyer and seller
If your business has weak goodwill — meaning its value is close to the value of its tangible assets — it suggests the business lacks the intangible strengths (brand, customers, systems) that command premium multiples. Strengthening these intangibles before sale is one of the most effective ways to increase your price.
Step 4: Understand What Affects Your Multiple
Two businesses in the same industry with identical EBITDA can sell for very different prices. The multiple is determined by:
Higher multiples (lower risk):
- Growing revenue and profit
- Diversified customer base
- Recurring/contracted revenue
- Business operates without the owner
- Strong management team
- Clean financials and governance
- Long lease (if location-dependent)
Lower multiples (higher risk):
- Declining or flat revenue
- Customer concentration
- Owner dependency
- Thin margins
- Short or unfavourable lease
- Outstanding disputes or compliance issues
For a deep dive into the qualitative factors that move multiples, read our guide on how much is my business worth, which covers customer concentration risk, management dependency, IP advantages, and more.
Step 5: Know What’s Added on Top
The business valuation gives you an enterprise value. On top of this, you typically add:
- Surplus cash on the balance sheet
- Inventory at cost (for product businesses)
- Plant and equipment (if not already reflected in the multiple)
And you subtract:
- Debt the buyer assumes
- Working capital deficits
The result is the equity value — what you actually receive.
Common Mistakes Sellers Make
- Overvaluing based on revenue, not profit — revenue means nothing if the margins aren’t there
- Not normalising financials — cash taken from the business informally isn’t reflected in the accounts
- Timing it wrong — selling during a downturn or after a bad year significantly impacts price
- Not preparing — the best outcomes come from 12-24 months of preparation
- Going to market without an advisor — you negotiate against professional buyers; you need professional representation
- Ignoring goodwill — failing to document and present the intangible assets that justify your asking price
- Not understanding your buyer — different buyer types value different things, and positioning matters
Next Steps
Use our valuation calculator for a quick estimate. Read our guides on how much is my business worth and what buyers look for for additional context on the factors driving value.
When you’re ready for a professional assessment, contact our team for a confidential conversation about your business and your goals.