How Much Is My Business Worth?
The importance of seeing things long-term: How a business owner almost sold for $3M, but proper valuation revealed $6M today and $62M+ in 15 years at conservative 20% growth
The Business Valuation Series
Kevin's Journey: From Employee to Business Owner
The Employee Years
Status
Employee in his industry for years
Repeated Invitation
I urged him to become independent multiple times
Response
Reluctant, postponed for several years
The Transition
Timeline
7 years ago (2019)
Decision
Finally became a contractor
Starting Capital
A few thousand dollars
Today's Reality
Business Value
$2.5M (his own valuation)
Investment Portfolio
$1.2M
Current EBITDA
$400,000
The Growth Engine
Current Growth Rate
30% year-over-year
Industry
Profitable niche, multi-decade growth just starting
Business Model
Institutional clients, subscription model
Outlook
Sticky revenue model, growing referral-based clientele, multi-decade growth potential
The Math That Changes Everything
From a few thousand dollars to $2.5M in 7 years. That's a compound annual growth rate of approximately 75%. This isn't just growth. This is transformation.
The question isn't whether Kevin's business is valuable. The question is: How valuable is it really?
The Hidden Problem: Underestimating Business Value
Kevin received an offer to sell his business for $3 million. It seemed like a good number. But was it?
A Common Pattern
There's a pattern I see repeatedly: successful business owners often underestimate the value of their businesses. They focus on day-to-day operations, cash flow, and immediate challenges. They don't step back to see what they're building.
The reverse is also true: unsuccessful owners almost always overestimate the value of their businesses. They see potential that isn't there, or they confuse revenue with value.
Kevin's Situation:
- His own valuation: $2.5M (what he thought it was worth)
- Offer received: $3M (seemed reasonable)
- Proper valuation: $6M (what it's actually worth today)
- Future value (15 years): $62M at 20% growth (conservative, discounted from current 30% growth)
- Future value (15 years): $358M at 30% growth (what's possible with increasing margins)
Why This Matters
Our minds are not built to visualize compounding over 10 or 15 years. The brain struggles with this. Even after decades of talking about compounding, my brain is just not braining on this one. I always need a calculator. The brain is never brave enough to foresee the power of compounding.
Moreover, numbers compounding, money compounding, being the simplest to calculate, only touches the surface of what actually materializes in real life.
Real compounding happens when numbers compounding combines with the compounding of intangibles. Conviction. Habits. Knowledge. Connections. Client trust. Skills. These are the true leading indicators. When they compound alongside the numbers, the future becomes drastically different than what we can see today.
The Proper Valuation: What Kevin's Business Is Really Worth
For a high-growth company like Kevin's, we need to use a valuation method that accounts for future cash flows and growth potential.
Valuation Methodology
Discounted Cash Flow (DCF) with Terminal Value
For high-growth companies with institutional clients on a subscription model, we use a Discounted Cash Flow (DCF) model with a terminal value based on EBITDA multiples. This accounts for:
- Current cash flows ($400k EBITDA)
- Projected growth (conservative 20% for main comparison, discounted from current 30%)
- Sticky revenue model and growing referral-based clientele
- Terminal value (using 10x EBITDA multiple for 20% growth, 12x for 30% growth)
- Discount rate (accounting for risk and time value)
Why DCF for Subscription Businesses:
Simple EBITDA multiples (3-5x) undervalue high-growth subscription businesses with institutional clients. DCF captures the value of future growth, sticky revenue, and the multi-decade growth potential in fast-growing industries.
Current Value (Today)
Proper valuation using DCF
$6.0 Million
Breakdown:
- Current EBITDA: $400k
- Valuation multiple: 15x EBITDA (high-growth premium)
- Base value: $400k × 15 = $6.0M
- Proper asking price: $7.2M - $8.0M (18x-20x EBITDA for subscription businesses)
- Offer received: $3.0M (50% below value, 62% below asking price)
- His own valuation: $2.5M (58% below value, 69% below asking price)
If Kevin sold for $3M: He would leave $3M on the table immediately, plus walk away from $59M+ in future value at conservative 20% growth (or $355M+ at 30% growth with increasing margins).
The Mindset Challenge
Kevin was reluctant to become independent. He never dreamed of one day having a business worth $6 million. For similar reasons, he cannot see today how his business might be worth $60 million or more in 15 years from now.
As Steve Jobs said: "You can't connect the dots looking forward; you can only connect them looking backward." Successful business owners often need someone to connect the dots forward for them, so they don't cut themselves short.
Future Value Scenarios (15 Years)
What you're building for your children depends on growth rate. Main comparison uses 20% (conservative).
Discounted from 30% to be conservative
*35% for 10y, then 30% (increasing margins)
Main comparison uses 20% growth (conservative):
Discounted from current 30% growth to account for future moderation. The 30% scenario shows what's possible with increasing margins. A 10% difference in growth rate (20% vs 10%) creates a $49M gap in generational wealth over 15 years. This is what you're building for your children.
Important: These valuations reflect only the business growth, excluding any growth in the investment portfolio. Kevin also has a $1.2M investment portfolio that will compound separately.
The Long-Term View Changes Everything
Kevin's business isn't just worth $6M today. At a conservative 20% growth rate (discounted from current 30%), it's a $62M asset in 15 years. At 30% growth with increasing margins, it could be $358M. At 10% growth, it's $13M. The question isn't whether to sell. The question is: What are you building for the next generation?
Note: These valuations reflect only the business growth, excluding the separate growth of the $1.2M investment portfolio.
The Calculation: Running the Numbers
Here's how we calculated Kevin's business value using a proper DCF model for high-growth companies.
Valuation Assumptions
Current EBITDA
$400,000
Growth Rate
30% annually
Projection Period
15 years
EBITDA Multiple
15x (high-growth)
Note: This table shows three growth scenarios over 15 years. The 20% growth scenario (main comparison) uses a 10x EBITDA multiple and is discounted from the current 30% growth rate to be conservative. The 30% growth scenario* accounts for increasing profit margins (35% EBITDA growth for first 10 years, then 30% for years 11-15) and uses a 12x EBITDA multiple, showing what's possible. The 10% growth scenario uses an 8x multiple. The difference between 20% and 10% growth is $49M in generational wealth over 15 years.
The Comparison: What Kevin Almost Did vs. What He's Actually Building
Note: The $62M opportunity cost (using conservative 20% growth) includes the $3M immediate loss (selling below value) plus the $59M in future value that would be lost by selling today instead of holding and building for the next generation. This uses a conservative 20% growth rate, discounted from the current 30% growth to account for future moderation. At 30% growth with increasing margins, the opportunity cost would be $358M. At 10% growth, it would be $10M.
The Opportunity Cost: Why Long-Term Vision Matters
Every decision Kevin makes today affects what he can pass to the next generation. Here's why seeing the long-term picture matters:
The Immediate Loss
Selling for $3M when the business is worth $6M means leaving $3 million on the table immediately. That's not just a negotiation loss. That's a valuation problem.
Cost: $3M immediate loss
The Future Loss
Selling today means walking away from a business that could be worth $62M in 15 years at a conservative 20% growth rate (discounted from current 30% growth). At 30% growth with increasing margins, it could be $358M. At 10% growth, it's $13M. That's not just lost growth. That's lost generational wealth.
Cost: $59M future value lost (at conservative 20% growth)
The Generational Impact
A $62M business (at conservative 20% growth) passed to children creates different opportunities than a $3M cash sale. The business continues growing. The wealth compounds. The legacy multiplies. Kevin cannot see this today, just as he couldn't see a $6M business when he was reluctant to become independent.
Cost: Lost generational wealth creation
The Bottom Line
Time is the only asset that can't be bought back. Every year Kevin holds and builds, the value compounds. The question isn't whether to sell. The question is: What are you building for the next generation?
Key Takeaways
What this case study demonstrates
Successful Owners Underestimate
Successful business owners often underestimate the value of their businesses because they focus on day-to-day operations rather than long-term potential. Proper valuation methods reveal the true value.
High-Growth Requires DCF
Simple EBITDA multiples (3-5x) undervalue high-growth companies. Discounted Cash Flow (DCF) models capture the value of future growth, which is the real asset in fast-growing industries.
Long-Term Vision Multiplies Value
A business worth $6M today could be worth $62M in 15 years at a conservative 20% growth rate (discounted from current 30% growth), $358M at 30% growth with increasing margins, or $13M at 10% growth. The difference between selling today and building for the next generation is the difference between immediate cash and generational wealth.
Time Compounds Everything
Every year of growth compounds. From a few thousand dollars to $2.5M in 7 years. From $6M today to $62M in 15 years at a conservative 20% growth rate. Time is the multiplier that turns businesses into generational assets.
Know What Your Business Is Really Worth
If you're running a successful business, especially in a fast-growing industry, you may be underestimating its value. Proper valuation methods can reveal what you're actually building for the next generation.
Continue the Series
Important Disclosure
This case study is illustrative only and not a substitute for professional advice. All client names and specific identifying details have been changed to protect confidentiality. This is an illustrative example of process and approach, not a guarantee of outcomes.
Assumptions: This case study assumes:
- Current EBITDA of $400,000 with three growth scenarios: 30% annually with increasing margins (35% EBITDA growth for 10 years, then 30% for 5 years, resulting in $358M value at 15 years), 20% annually ($62M value, conservative, discounted from current 30% growth), and 10% annually ($13M value)
- Valuation using 15x EBITDA multiple for high-growth companies (current value), 12x multiple for 30% growth scenario, 10x multiple for 20% growth scenario (main comparison), and 8x multiple for 10% growth scenario
- Business model: Institutional clients on subscription model, sticky revenue model, growing referral-based clientele
- Institutional subscription model with increasing profit margins over time (EBITDA growth may exceed revenue growth)
- Business remains in a fast-growing, profitable niche with multi-decade growth potential
- No major industry disruptions or competitive threats
- Owner maintains operational control and growth trajectory
Every situation is unique. Business valuations, growth projections, and future outcomes depend on many factors including industry conditions, competitive landscape, management execution, market demand, economic conditions, and regulatory changes. What worked in this case may not be appropriate for your circumstances.
Business valuation requires professional expertise. Always work with qualified business valuators, CPAs, and financial advisors to understand how valuation methods apply to your situation. Do not make business sale or succession decisions without professional guidance.