What Is My Business Actually Worth? - Insights From Stawowski McGill’s Built to Last, Ready to Exit Series
Every business owner will exit eventually, and when that day comes, one question matters more than most: what is my business actually worth?
That idea is at the heart of Built to Last, Ready to Exit, Stawowski McGill’s three-part Leaders Breakfast Forum series for Calgary business owners. Whether you're nearing a transition or just starting to think about it, the series is designed to help you build a business that's ready when the time comes. Like all our forums, it's a space for owners to ask industry experts direct questions and walk away with ideas they can apply immediately.
We opened the series with the question that sits underneath every exit conversation: what is my business actually worth? To answer it, we sat down with Devin Wagner, Managing Director, Transactions at Doane Grant Thornton, who has 28 years of experience in business valuations and M&A.
Here's what stood out.
How Business Valuation Comes Down to Two Numbers
Valuators use several formal methods, but as Devin Wagner put it, when push comes to shove, the value of your business comes down to EBITDA times a multiple. EBITDA is meant to show the true operating cash flow of the business, regardless of how it's financed. To get there, valuators normalize your historical results, adjusting for items like the owner's salary, rent paid to a related party, and personal expenses run through the company.
The multiple reflects risk and industry. An asset-heavy business needs constant reinvestment in equipment, so buyers pay less for each dollar of EBITDA than they would for an asset-light service business. Within any industry, recurring or contracted revenue generally earns a higher multiple than project-based work, particularly from private equity buyers.
Curious what multiples look like in your industry? Devin walked through the ranges he's currently seeing for construction, trades, manufacturing, professional services and energy services, and you can hear his full take in the recording link below.
Why Buyers See Different Numbers
A few years ago, one of Devin's clients had their business valued at roughly $20 million. They took it to market, and one buyer offered $32 million.
The buyer wasn't being careless. They saw synergies that could significantly grow EBITDA under their ownership. A customer concentration issue that concerned other buyers didn't concern them, because they already worked with that customer.
Every buyer runs their own math on both numbers. Strategic buyers already in your industry can often look past issues they know how to fix. Financial buyers, like private equity firms and family offices, tend to work from a checklist, and if your business doesn't tick every box, they'll pass. Devin was quick to add that offers come in lower than owners expect far more often than higher.
The Number in Your Head Is Probably Wrong
By Devin's rough estimate, 99 percent of owners have the wrong number in mind. Sometimes it's too high, like the owner who hoped for $1 million and learned the business was worth closer to $150,000. Sometimes it's too low, with owners who would be satisfied with three times earnings and the market is actually paying five.
Either way, a realistic number is the one you can act on. It's far better to learn that now than halfway through selling your business.
One group of owners Devin worked with wasn't happy with their valuation, but they listened to the reasons behind it: a thin management team, customer concentration, and owners who couldn't step away. They spent the next four years working on those issues. When they came back, the business was valued at double the original number, and it sold for that.
As Brian McGill wrote in his recent blog post, Thinking About Selling Your Business?, a business that depends on its owner is worth far less to a buyer. Devin agreed. Lack of management is the number one value detractor he sees, followed by customer concentration.
Clean Up Before You Need To
Devin's advice is to get a valuation early, revisit it regularly, and ask your valuator to explain which risks drove their number. That turns a valuation into a to-do list. He also cautioned against going to market with a long list of normalization adjustments to EBITDA. Every buyer expects an adjustment for the owner's salary. But when there are ten+ adjustments, you're handing the buyer ten+ opportunities to poke holes in your numbers.
And give yourself time. From signing on with an M&A advisor to signing a purchase agreement, Devin tells owners to expect about nine months, with due diligence as the most demanding stretch.
Know Your Number Now
Devin's parting thought was simple: understand the value of your business, and never assume it's too early to start exit planning. Too many sales are triggered by something unplanned, whether it's a health emergency or an unsolicited offer that arrives before the owner is ready.
Knowing where you stand today, and what's holding your value back, gives you clarity on what to work on and the confidence to exit on your own timeline.
If you're a Calgary-area business owner wondering what your business is worth, or how to build its value before an exit, our Fractional CFO+ team would welcome the conversation.
Learn more about our Fractional CFO+ approach here.