Why Numbers Drive Business Valuation
When owners start thinking about selling, the first things they usually mention are the story:
“We’ve been around forever.”
“The business has incredible potential.”
“Our reviews are amazing.”
All of that matters - but it’s not what drives valuation.
Buyers, lenders, and the market look at one thing first: the numbers. Not because they don’t care about the story, but because the numbers tell them whether the business is actually producing the cash flow needed to support a purchase.
Here’s what business owners should understand:
1. Cash flow sets the value. Period.
Your SDE or EBITDA isn’t just a line on a P&L - it’s what buyers are really buying.
If the cash flow is strong and consistent, the value goes up.
If it’s inconsistent, messy, or trending down, the value goes down.
Buyers want to know: “How quickly does this business pay me back?”
Cash flow answers that.
2. Risk changes the multiple.
Two companies with the same earnings can sell for completely different prices because buyers adjust for risk.
Risk shows up in things like:
customer concentration
declining margins
seasonality
owner-dependence
poor financial records
volatile revenue
unclear add-backs
The lower the perceived risk, the higher the multiple.
The higher the risk, the faster the multiple shrinks.
3. Lenders make decisions based solely on the numbers.
If a buyer needs SBA financing, the bank is going straight to the tax returns and financials.
They don’t care how well-liked the business is.
They want to see reliable, verifiable cash flow that can support debt.
A great story doesn’t get a loan approved. Clean numbers do.
4. Trends matter more than the total.
Buyers always look at the last 3 years:
Are revenues moving up, down, or sideways?
Is SDE stable or shrinking?
Are margins holding?
One good year doesn’t offset two declining ones.
And a consistent upward trend can justify a stronger valuation.
5. Your numbers determine your buyer pool.
This is one owners don’t think about.
A business doing $250K SDE attracts a different type of buyer than one doing $1M+ EBITDA.
Your financial profile determines whether buyers are:
Main Street
SBA-backed
strategic
private equity
More qualified buyers = more competition = stronger valuation.
6. Strong numbers = leverage.
When a buyer pushes on price, clean financials allow you to push back.
When numbers are messy, the buyer gains leverage - and the offer usually drops.
7. Clean numbers make the entire deal smoother.
Good financials:
shorten due diligence
reduce deal fatigue
limit retrades
increase lender confidence
create trust
Sloppy numbers can kill a deal, even if the business itself is solid.
Bottom Line
Your story matters - but the numbers are what buyers use to justify an offer.
If you’re thinking about selling in the next few years, the best move you can make now is to:
clean up the books
tighten add-backs
document the owner benefits
improve the consistency of your reporting
These steps have a direct impact on valuation and on how many buyers you’ll attract.
If you want a confidential look at what your numbers say about your business’s value - or what would need to change to improve it - just reach out.