What buyers pay for: the seven value drivers
Two businesses with identical earnings can sell for very different prices, and the difference is not luck. It is the multiple, and the multiple is a judgment about risk. ExitSight builds it from seven scored value drivers rather than a number picked out of the air: earnings track record, industry growth, business growth, financing, competition, owner dependence, and customer concentration. Here is what each one measures and why a buyer cares.
For context, reported small-business sales average about 2.58 times SDE across all sectors, with sector averages from roughly 2.0 to 3.3. The drivers below are what move an individual company through that range — and past it, in either direction.
1. Earnings track record
A buyer is purchasing future earnings, and the past is the only evidence on offer. Three to five years of steady or rising recast earnings score high. A single great year after two mediocre ones scores low, because the buyer cannot tell which year is the business. Volatility is punished even when the average is good; a company earning $250,000, $150,000, and $350,000 is worth less than one earning $250,000 three times, since the lender underwriting the deal prices the worst year.
2. Industry growth
A company rides its industry the way a boat rides the tide. Buyers pay more for a business in a growing field because tomorrow's revenue takes less effort to earn, and less for one in a shrinking field regardless of how well it is run today. The sector spread in transaction data reflects this: online and technology businesses average 3.28 times SDE while transportation and storage average 1.95. Same arithmetic, different tide.
3. Business growth
Separate from the industry: is this company growing within it? A shop gaining share in a flat market demonstrates something a buyer values — that the growth belongs to the business, not the weather. Score it on revenue trend over the same years as the earnings record, and be honest about the source. Growth bought with price cuts or one big contract is not the same driver as growth from a widening customer base.
4. Financing
A business that a bank will finance is worth more than one it will not, because financeable deals attract more buyers and close at fuller prices. Lenders want clean books, verifiable earnings, assets to secure, and debt service coverage with room to spare. A company that supports an SBA loan at the asking price effectively enlarges its own market of buyers. One that requires all cash shrinks it, and the price follows the smaller crowd.
5. Competition
What protects the earnings? A defended niche, long-term contracts, exclusive territory, or a reputation that took decades to build all score high. Low barriers score low: if a competitor can replicate the business with a van and a license, the buyer is paying for a head start, not a moat. Score what would happen to margins if a capable competitor opened nearby tomorrow, because the buyer is quietly running exactly that scenario.
6. Owner dependence
If the customers, the pricing, the key skills, and the supplier relationships all live in the owner's head, then the owner is the business, and the owner is not for sale. This is the driver that most often caps an otherwise strong company's multiple. The test is blunt: could the owner take a month off without the phone ringing? A trained crew, documented processes, and customer relationships spread across staff all transfer. Personal goodwill does not.
7. Customer concentration
One customer at 40 percent of revenue is a risk no buyer ignores, because that customer's next contract decision can erase the deal's economics. Concentration below about 10 percent per customer barely registers. Above 25 percent for any single account, expect the multiple to compress and the deal structure to change — earnouts and holdbacks exist largely for this driver. Long contracts and switching costs soften the score; a handshake relationship does not.
How the scores become a multiple
In ExitSight's Earnings Multiple worksheet each driver is scored 0 to 4 against written anchors. The average score sets the multiple of discretionary earnings on a curved scale that runs from 2× at a score of 0, through about 3× at an average 2, to 7× only at a perfect 4, so the top of the scale has to be earned on every driver. The scoring table prints in the report with your note behind each score, so the multiple arrives with its reasoning attached instead of as a verdict.
The drivers are also a to-do list: most of them can be improved before a sale, given time. Seepreparing a business for sale, themultiple of discretionary earnings method, orthe whole valuation process.