How a valuation can help you understand the full scope of your business

What a Broker's Opinion of Value Really Tells You

Most business owners think of a valuation as something you get when you're ready to sell. You decide to list, you call a broker, and somewhere in the process, someone puts a number on the business.

That's not wrong. But it's an incomplete picture, and for the owners I work with, it's also a missed opportunity.

Over the last four years, I've completed more than 100 broker's opinions of value for Sacramento-area businesses across industries: HVAC, construction, fitness, transportation, manufacturing, and more. Some of those BOVs were for owners actively preparing to sell. But a growing number are for owners who aren't going anywhere anytime soon. They just want to understand what they're building and where it's headed.

What I've found is that the conversation following a broker's opinion of value is often more valuable than the number itself.

What a Broker's Opinion of Value Actually Is

A broker's opinion of value (BOV) is a professional assessment of what a business would likely sell for under current market conditions. It's not a certified appraisal, which is a formal document used for tax, legal, or lending purposes and requires a different credential. What a BOV provides is a credible, market-informed estimate of fair market value based on your financials, industry comparables, and the specific characteristics of your business.

The foundation of a BOV is Seller's Discretionary Earnings (SDE), a calculation that starts with your net income and adds back the owner's salary, payroll taxes on that salary, depreciation, interest, and any personal or discretionary expenses the business is running. The goal is to show what the business would actually put in a new owner's pocket each year.

From there, we apply an industry-standard SDE multiple, a range based on what comparable businesses in your industry have actually sold for. A service business might trade at 2.5x to 3.5x SDE. A business with recurring revenue, a strong management team, and documented processes might command the top of that range. One that's heavily dependent on the owner might sit at the bottom.

The result is a valuation range, not a single figure. And it's that range, and specifically what determines where your business falls within it, that tends to generate the most useful conversations.

What Owners Are Usually Surprised By

When I sit down with a business owner to walk through a BOV for the first time, there are two things that come up consistently.

The first is the SDE add-backs. Most owners run their businesses to minimize taxable income, which is smart tax planning, but it means their books don't reflect the actual economic benefit the business is generating. When we add back owner compensation, vehicle expenses, health insurance premiums, retirement contributions, and other discretionary items, the adjusted earnings figure is often meaningfully higher than what the owner saw on the bottom line. That changes the valuation significantly.

The second is the multiple. Specifically, what drives it up or down.

To make this concrete, let me walk through a hypothetical example that illustrates how this plays out. I'll call the company Capital City HVAC, a fictitious Sacramento-based HVAC business. Think of it as a composite of the kinds of businesses I work with: founded more than a decade ago, grown to $1.5 million in annual revenue, 18 employees, a fleet of 10 service vehicles. A solid, established operation.

If we ran a BOV on a business like this, the numbers might look like this: a 2025 SDE of $827,280, placing the valuation range between $2.48 million and $3.6 million depending on the buyer type. But the more useful part of the analysis isn't the range itself. It's understanding what puts a business at one end versus the other.

A business like Capital City HVAC would have a lot going for it: growing SDE margins, a dedicated general manager, recurring revenue from maintenance agreements, and technical expertise aligned with where the industry is heading. Those factors support the higher end of the range.

But there would likely be gaps, too. If the owner is still the primary relationship for several key commercial accounts, that's a risk factor. If standard operating procedures aren't fully documented, that matters to buyers. If business development is one person deep, that's a concentration concern. Those factors pull the multiple down, and they're exactly the kinds of things a BOV surfaces before you're under pressure to address them.

That's the value of the exercise. The question stops being "what is this worth?" and becomes "what would it take to get to the top of the range, and how long would that realistically take?"

How a BOV Shapes the Conversation About Timing

Exit timing is one of the hardest decisions a business owner faces. Sell too early and you may leave money on the table. Wait too long and the market shifts, your energy fades, or a life event forces your hand.

A broker's opinion of value doesn't make that decision for you. But it gives you a factual foundation for thinking it through.

For some owners, running a BOV is the first time they've ever seen their business through a buyer's eyes. That perspective changes things. Using the Capital City HVAC example: if an owner saw that the business was sitting in the lower half of the range today, but that addressing a few specific operational gaps could move it from the $2.5M scenario to the $3.1M scenario in 12 to 18 months, the timing question would become much more concrete. Not "I'll sell when I feel like it," but "is another year of focused work worth $600,000?"

That's a real question with a real answer.

I've also seen it go the other direction. Owners who assumed they had a few more years before they needed to think about selling came in for a BOV and discovered their business was already well-positioned. The market conditions were favorable. The buyer pool was active. Waiting might not produce a better outcome.

In both cases, the BOV created clarity.

Why I Recommend Annual BOVs for Owners Building Toward an Exit

For many of the business owners I've represented, I've started conducting annual BOVs as part of our ongoing work together, even when a sale is still several years out. The reason is simple. A single data point tells you where you are. A series of data points tells you whether you're moving in the right direction.

If SDE grew 15% year-over-year, you can see it. If the factors that drive the multiple, things like management depth, recurring revenue, and owner independence, improved, you can see that too. And if something slipped, you can catch it before it compounds.

Think of it like an annual physical. You don't wait until you're sick to see a doctor. You go each year to understand your baseline, track trends, and address small problems before they become large ones. A BOV does the same thing for your business value.

This kind of ongoing look also keeps exit planning from becoming a scramble. I've had conversations with owners who waited until they were emotionally ready to sell before asking what their business was worth, only to find out that the business wasn't operationally ready. Financials weren't clean. Key processes lived in the owner's head.

One or two large customers represented too much of the revenue. Those are all fixable problems, but they take time. Finding them three years before you want to sell is a very different situation than finding them three months before.

I've written more about this in why smart owners prepare to sell well before they're ready if you want to go deeper.

What the Report Includes

A broker's opinion of value from Sacramento Business Brokers typically covers:

• A three-year financial analysis with a full SDE calculation and detailed add-back schedule

• A valuation range built on industry-standard SDE multiples, with separate scenarios for SBA-financed buyers and strategic buyers

• An analysis of the specific value drivers and risk factors for your business

• Industry context, including market size, growth trends, M&A activity, and comparable transactions

• A clear explanation of where your business sits within the range and what's driving that position

The report isn't a generic template. It's built from your actual financials, your industry's current transaction data, and the characteristics of your specific business. The goal is to give you something you can use to make real decisions about timing, priorities, and what to work on between now and when you're ready to sell.

Key Takeaways

1. A BOV is not just a pre-sale formality. It's a planning tool that gives you a clear picture of your business's market value and what's driving it at any stage of ownership.

2. SDE is the foundation. Understanding how your business's earnings are calculated, and what gets added back, often reveals that your business is generating more economic value than your tax returns suggest.

3. The multiple range is where the real insight lives. Where your business falls within that range tells you what's working, what needs attention, and where the highest-leverage opportunities are.

4. Annual BOVs create momentum. A single valuation is a snapshot. Annual valuations give you a trend line and a way to measure whether the decisions you're making are actually moving the needle.

5. Exit timing becomes a real decision, not a guess. When you know what your business is worth today and what it could be worth with focused preparation, the question of when to sell becomes much more concrete.

   
   

If you've never had a professional look at what your business would actually sell for, or if it's been a while since your last assessment, that's a conversation worth having. You can request an assessment of value or browse the FAQ on selling your business to learn more about the process.