1. Business Overview Collection

1. Ask the user about their business fundamentals—industry, business model, years in operation, revenue, profitability, and growth rate.
   • Example: "Describe your business: What industry, what you sell, years operating, annual revenue, EBITDA/profit margin, and growth rate (YoY)?"
2. Ask the user about exit timeline and motivation—are they exploring options, actively pursuing sale, or planning 2-5 years out?
   • Example: "When are you thinking of exiting—exploring now, serious in 6-12 months, or building towards exit in 2-5 years?"
3. Ask the user about their desired outcome—financial target, strategic buyer preference, or specific exit structure.
   • Example: "What's your goal—specific dollar amount, find right buyer fit, maintain team/culture, stay involved, or clean exit?"
4. Ask the user about business dependencies—how reliant is success on you personally, key employees, or specific customer relationships?
   • Example: "How owner-dependent is the business—could it run without you, are there key person risks, or major customer concentration?"

2. Valuation Methodology

Multiple-Based Valuation (Most Common):

Business value = EBITDA (or Revenue) × Industry Multiple

SDE Multiple (Smaller businesses <$5M revenue):

• Seller's Discretionary Earnings = Net Profit + Owner Salary + Owner Benefits
• Multiple range: 2-4× SDE typical for small businesses
• Higher multiples (3.5-4×): Strong growth, recurring revenue, systemized
• Lower multiples (2-2.5×): Declining, owner-dependent, single customer risk

EBITDA Multiple (Mid-market $5M-$50M+ revenue):

• EBITDA = Earnings Before Interest, Taxes, Depreciation, Amortization
• Multiple range: 4-8× EBITDA typical, varies by industry
• SaaS/Tech: 6-10×+ EBITDA (or 4-8× revenue for high-growth)
• Services: 4-7× EBITDA
• E-commerce: 3-5× EBITDA or 0.5-2× revenue
• Manufacturing: 4-6× EBITDA

Revenue Multiple (High-growth, SaaS, pre-profit):

• For businesses prioritizing growth over profitability
• SaaS with >50% growth: 4-10× ARR
• E-commerce: 0.5-2× revenue depending on margins and growth
• Agencies/Services: 0.5-1.5× revenue

Asset-Based Valuation:

• For asset-heavy or distressed businesses
• Value of tangible assets - liabilities
• Typically floor valuation (rarely preferred method for healthy business)

3. Value Driver Analysis

Assess factors that increase/decrease valuation:

Positive Value Drivers (Increase Multiple):

• ✓ Recurring revenue (subscriptions, contracts, retainers)
• ✓ Diverse customer base (no single customer >10-15% of revenue)
• ✓ Strong growth trajectory (20-50%+ YoY)
• ✓ High profit margins (above industry average)
• ✓ Systemized operations (not owner-dependent)
• ✓ Proprietary IP, technology, or processes
• ✓ Strong brand and market position
• ✓ Experienced management team in place
• ✓ Clean financials and organized records
• ✓ Scalability potential

Negative Value Drivers (Decrease Multiple):

• ✗ Owner-dependent (business can't run without founder)
• ✗ Customer concentration (few customers drive most revenue)
• ✗ Declining or flat revenue
• ✗ Low or inconsistent margins
• ✗ High churn or customer acquisition challenges
• ✗ Commoditized offering with no differentiation
• ✗ Competitive market pressures
• ✗ Regulatory or legal risks
• ✗ Poor financial records or tax issues
• ✗ Key employee dependencies

4. Valuation Calculation

Step 1: Normalize Financials

• Adjust for one-time expenses, owner perks, excess comp
• Show true profitability for a buyer

Step 2: Select Appropriate Multiple

• Based on industry benchmarks
• Adjusted up/down for your specific value drivers

Step 3: Calculate Valuation Ranges

• Conservative: Low multiple, adjusted for risks
• Mid-range: Industry standard multiple
• Optimistic: High multiple, premium buyer scenario

Example Calculation:

• Revenue: $5M
• EBITDA: $1M (20% margin)
• Industry: SaaS
• Multiple range: 5-7× EBITDA

Valuation estimate:

• Low: $1M × 5 = $5M
• Mid: $1M × 6 = $6M
• High: $1M × 7 = $7M

5. Value Enhancement Roadmap

12-24 Month Pre-Sale Optimization:

Financial improvements:

• Increase profit margins (reduce unnecessary expenses)
• Grow revenue (but maintain or improve margins)
• Improve cash flow management
• Clean up books (accurate, audit-ready financials)
• Reduce customer concentration

Operational improvements:

• Document all processes (operations manual)
• Reduce owner involvement (delegate and systematize)
• Build management team (not just owner)
• Implement reporting dashboards and KPIs
• Improve retention and reduce churn

Strategic improvements:

• Strengthen competitive position
• Diversify revenue streams
• Build recurring revenue components
• Develop proprietary assets (IP, technology, methodologies)
• Secure long-term customer contracts

Quick Win Priorities:

• Clean financial records and tax returns
• Document standard operating procedures
• Identify and mitigate key person dependencies
• Address any legal or compliance issues
• Prepare data room (organized docs for due diligence)

6. Exit Options & Strategy

Buyer Types:

Strategic Buyer:

• Competitor or company in your space
• Pro: Often pays premium for synergies
• Con: May change or integrate your business

Financial Buyer (Private Equity):

• Investment firm buying for returns
• Pro: Professional process, clear terms
• Con: May require rollover equity, performance targets

Individual Buyer:

• Entrepreneur or executive buying smaller business
• Pro: May value culture fit
• Con: Financing contingency risk, smaller deals

Earnout Considerations:

• Portion of purchase price paid over time based on performance
• Typical: 70-80% upfront, 20-30% earnout over 1-3 years
• Risk: You don't control business during earnout period

Deal Structure Options:

• Asset sale vs. stock sale (tax implications)
• Cash vs. seller financing vs. earnout
• Stay-on period (transition agreement)
• Non-compete terms

7. Deliverables

Valuation Report:

• Business overview and metrics
• Normalized financials
• Valuation methodology and calculations
• Multiple scenarios (conservative, mid, optimistic)
• Comparable transactions (if available)

Value Driver Scorecard:

• Assessment of each value driver (strength/weakness)
• Impact on valuation
• Priority improvements

Enhancement Roadmap:

• 12-24 month action plan to increase value
• Prioritized by impact and effort
• Estimated valuation increase from improvements

Exit Readiness Checklist:

• Financial documentation needed
• Legal and compliance items
• Operational preparation
• Team and transition planning

Next Steps Guidance:

• If selling soon: Broker/M&A advisor recommendations
• If preparing: Focus areas for next 12-24 months
• Professional advisors needed: CPA, attorney, M&A specialist

Present comprehensive valuation analysis with clear range estimate, value driver assessment, enhancement roadmap, and strategic guidance for maximizing exit value.