Valuation
What is your business actually worth?
Every founder has done this math on a napkin. Here is how buyers actually do it.
Start with EBITDA. EBITDA is your annual profit before interest, taxes, depreciation, and amortization, and it is the number buyers use to compare one business with another.
The number on your tax return is rarely the number buyers price, because most founder-run companies carry costs a new owner would not. Maybe you pay yourself well above what a hired president would cost. Maybe the company carries your vehicles, some personal expenses, or a one-time legal bill from a dispute that is over. Buyers add those costs back to profit. The result is called adjusted EBITDA, and each item is called an addback.
A quick worked example. Say your company reported $1.4 million of profit last year. Add back $250,000 of owner salary above what a hired replacement would cost, $60,000 of vehicles and other personal expenses, and a $90,000 one-time legal bill. Adjusted EBITDA is $1.8 million. If buyers in your sector pay 6x, that is $10.8 million of enterprise value, meaning the total price of the business before any debt is paid off.
So which multiple is yours? It depends on your sector and your quality. Across defense, industrial, and home services we typically see roughly 3.5x to 10x of adjusted EBITDA. Defense electronics sit near the top, and recurring home services like pest control and residential HVAC are not far behind. Project-heavy machining sits lower. These are typical ranges we see, and every business is different.
Within any sector, the same things move you up. Sole-source positions, where you are the only approved supplier of a part or service. Funded backlog, meaning work already under contract with money behind it. A cleared workforce a buyer cannot hire off the street. Certifications that are current, not lapsing. Customer diversity across programs and agencies. And clean books, because a number a buyer can verify is a number a buyer will pay for.
One caution about every formula, including this one. A multiple on a spreadsheet is an estimate. The only real answer to what your business is worth is what capable buyers, competing against each other, will actually pay. That is what a sale process exists to find out, and it is why an unsolicited offer is not a valuation. If you want an honest range for your own company before you decide anything, that is a conversation we have every week, and the first one costs nothing.
The buyers
Private equity found the defense industrial base. Here's why.
If a private equity firm has called your office lately, you are not alone. Three things changed over the past decade. Defense budgets entered a sustained upcycle. Reshoring put a spotlight on who actually builds, tests, and maintains critical hardware. And institutional money discovered what founders always knew: the supplier base is full of essential businesses.
Why your tier specifically? Fragmentation, first. Beneath the primes, the contractors who sell directly to the government, sit thousands of founder-owned suppliers with no dominant consolidator, so an investor can build a large company by combining good small ones. Second, program-driven demand that recurs. Parts wear out, systems get sustained for decades, and contracts renew. Third, real barriers to entry. Clearances, certifications, and past performance take years to earn, and a competitor cannot buy them off the shelf.
Two words you will hear. A platform is the first, larger company a private equity firm buys in a sector, the foundation it builds on. An add-on is a smaller company bought later and folded into that platform. Platforms tend to command higher multiples because they bring management, systems, and scale. Add-ons price lower but often close faster and simpler.
For founders this is mostly good news. There is real competition for quality companies in the defense industrial base, which was not true fifteen years ago. The buyers are professional, they have done this before, and they can close. The bar is higher too. Expect them to want defensible numbers, organized contract files, and straight answers in diligence, the detailed review a buyer runs before closing.
And the money has not stopped at defense. The same institutional buyers are consolidating industrial services and the home trades, HVAC, plumbing, electrical, and pest control among them, drawn by the same recipe of essential demand and fragmented markets. Founders in all three of our groups now sell into professional competition.
Now the honest caveat. The firm calling you is doing its job, and its job is buying well. An unsolicited offer from a single buyer usually lands below what a run process produces, because nothing disciplines price like competition. The buyer knows there is no other offer on the table and prices accordingly. Taking the call costs you nothing. Negotiating alone against people who buy companies for a living usually does. If the calls have started, take the compliment, then find out what your company is worth before you answer one.
Getting ready
Twelve months out: eight things to fix before you sell.
Most of your price is set long before the first buyer call. If selling is even a possibility in the next year or two, these eight projects pay better than anything else on your list. None commits you to a sale, and every one makes the company stronger even if you keep it.
1. Get reviewed financials and clean indirect rates
Buyers discount numbers they cannot verify. A review or audit from an outside CPA firm earns back its cost in price and speed, and clean indirect rates, the overhead math behind your billing, prevent the ugliest diligence surprises.
2. Push owner-dependence down
If every bid, hire, and customer call runs through you, a buyer is pricing a job, not a company. Build up a general manager who can run a normal week without calling you.
3. Document backlog, vehicles, and recompete dates
Lay out funded backlog, the work already under contract with money behind it, by program. Note your contract vehicles, the standing contracts you sell through, and flag every recompete, the date a contract comes back up for bid. Buyers pay for what they can see.
4. Lock in key cleared employees
A cleared workforce is part of what a buyer is paying for. Stay bonuses tied to closing beat surprises during diligence, and they cost far less than a departing program lead.
5. Keep AS9100, NADCAP, and CMMC current
Quality and cybersecurity certifications are table stakes in this market. A lapsed certification reads as operational risk and hands the buyer a reason to reprice.
6. Resolve open DCAA, DCMA, safety, and legal items
Open findings from the government's contract auditors, safety citations, and unresolved claims compound under a buyer's microscope. Fix what can be fixed, and disclose the rest early, on your terms.
7. Organize data rights and IP paperwork
Who owns the drawings, the code, and the technical data your parts depend on? If the answer lives in your head, write it down. Documented data rights are worth real money, and undocumented ones are a diligence fight.
8. Keep performing like you are not selling
The fade is the most expensive mistake on this list. Founders ease off, the pipeline thins, and the buyer reprices the deal off your weakest quarter. Run hard through closing day.
You do not have to do all eight at once. Pick the two that hurt the most and start there. A year of steady cleanup is usually worth more at the closing table than a year of growth, and it is entirely within your control.