It is your money. You should know how much you are going to get paid. When you take a look at a deal based on your seller’s thesis or Titan Thesis, you should be able to say with confidence whether an offer is suboptimal, about right, or worthy of the maximum multiple you have spent years building toward. This episode breaks down exactly how buyers calculate business valuation — and what your EBITDA multiple actually means in real dollars.
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How EBITDA Becomes Your Sale Price
For businesses above $10M in revenue, valuation is based on EBITDA — earnings before interest, taxes, depreciation, and amortization. That is your profit number. An investor, private equity, or investment group comes in and says: let us talk about EBITDA, then we multiply it by your multiple. If you have a $10M business and you are doing $1M in EBITDA, at a four multiple you are looking at a $4M deal. At a six multiple, $6M. A Titan Thesis company — the best of the best in your market with proof — can get 130–140% of what the market typically pays in an auction scenario.
How do buyers calculate business valuation using EBITDA?
Buyers calculate valuation by taking your EBITDA — earnings before interest, taxes, depreciation, and amortization — and multiplying it by a multiple that reflects the quality and risk profile of your business. A $10M revenue business doing $1M in EBITDA at a four multiple yields a $4M deal. The multiple is determined by how your business scores across the quality dimensions buyers evaluate during diligence.
Holdbacks — What They Are and How to Minimize Them
On an A-plus deal, you might see a 95-5 structure — $9.5M today and $500K held back for risk. If you are missing a few critical elements, the structure becomes 90-10 — $9M today with $1M held back. Whatever losses occur during the holdback period get deducted from that amount before you receive the remainder. Every preparation gap buyers find is money withheld at close. The best option is maximum money up front with the least holdback — and that takes work starting two to five years before your target exit date.
What is a holdback and how does it reduce real money received at close?
A holdback is a portion of the purchase price retained by the buyer after close as insurance against post-close problems — client losses, revenue declines, legal issues. On a $10M deal, a 10% holdback means $1M is withheld and returned only to the extent that post-close losses do not consume it. Every preparation gap buyers find increases the size of the holdback they require.
What does private equity use to value a business?
Private equity primarily focuses on EBITDA and EBITDA margins, revenue growth trajectory, cash flow consistency, client concentration, recurring revenue percentage, client acquisition cost, customer lifetime value, and churn. They also evaluate scalability — can the business grow with capital deployed behind it? And they model risk versus return: how quickly can they get their money back and what is the downside if performance declines?
What financial metrics does private equity use to value a business?
Private equity primarily focuses on EBITDA and EBITDA margins, revenue growth trajectory, cash flow consistency, client concentration, recurring revenue percentage, client acquisition cost, customer lifetime value, and churn. They also evaluate scalability and model risk versus return — how quickly can they get their money back and what is the downside if performance declines.
The Single Biggest Thing You Can Do to Increase Value
Increase predictable, repeatable cash flow while reducing every risk you can. Improve EBITDA. Build documented business systems. Remove owner dependency. Make the business transferable and scalable — because whoever buys it wants to scale it, so have everything in place for them. Buyers pay more for certainty than for potential. If your business runs clean and predictable, your valuation rises. That is straightforward math. It is your money. Get as much of it as you can. See also: 5-4-3-2 Exit Planning Framework | Titan Thesis.
What is the single biggest thing I can do right now to increase my business valuation?
Increase predictable, repeatable cash flow while reducing every risk you can. Improve EBITDA. Build documented business systems. Remove owner dependency. Make the business transferable and scalable. Buyers pay more for certainty than for potential. If your business runs clean and predictable, your valuation rises.
Full Episode Transcript
Aloha and welcome to episode number 43 — how buyers calculate business valuation: what your EBITDA multiple really means. Hey, it is your money. You should know how much you are going to get paid.
If you are above $10M in revenue and up to $250M, you are going to base your sale on EBITDA. Sources like BVR, PitchBook, and others publish what valuations look like. Valuations fluctuate by the quarter and change over the year. This is why having a 5-4-3-2-year plan allows you to be flexible — and why tracking this over quarters and looking for the optimal exit time matters.
If you have a $10M business doing $1M in EBITDA, at a four multiple you are looking at a $4M deal. At a six multiple, $6M. Where that changes is a Titan Thesis company — you are the best of the best in your market and you have proof. With proof and history you can get more for the valuation. In auction at the right timing with the right buyer, an A-plus platform company can get 130-140% of what the market typically pays.
On holdbacks: an A-plus deal might be 95-5 — $9.5M today and $500K held back for risk. Whatever losses occur during the holdback period get deducted before you see the remainder. The best option is maximum money up front with the least holdback. That takes work starting two to five years before your target date.
The single biggest thing you can do right now: increase predictable, repeatable cash flow while reducing every risk you can. Improve EBITDA. Build business systems. Remove owner dependency. Make the business transferable and scalable. Buyers pay more for certainty than for potential. It is your money. Get as much of it as you can. Aloha and Mahalo.
Related: Titan Thesis | 5-4-3-2 Framework | EBITDA Multiple — Episode 44 | Exit Ratio 360™ on Amazon
About Scott Sylvan Bell
Scott Sylvan Bell is a mid-market exit strategy consultant and the creator of the Exit Ratio 360™. His book is available on Amazon.