Welcome to The Main Street Minute, your shortcut to small business buying and scaling.
Today, we’re sharing part of our step-by-step guide to building a sellable business:
Inside today’s story:
The #1 tool buyers and sellers should use for this (yeah, we’re biased)
The "backwards approach" every owner should start with
The owner math behind how buyers really calculate your multiple
Reply to let us know what you think. We read every message. Oh yeah, we also wanted to give you a heads up…
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Alright, let’s dive in…
START HERE
How To Build a Business So Good, You Never Need to Sell It (Step-By-Step)
We work with hundreds of scaling business owners (and buyers) every day.
So many people run their business until they're miserable… And then they try to sell it and look like this:
Don't be like most people.
Build a business so it's sellable… and you'll never “have to” sell.
Still, the harsh truth is that selling a business is far easier said than done. Owners reach out to us all the time asking for guidance.
Often, they aren’t focused on selling until it's too late, and then they're forced to sell for less than they want.
Here’s the reason that’s so tough.
The second half of the Owner Wealth formula — and boy is it an important half — only works when a business is sold.
Understanding this simple formula can change your entire financial future:
That’s why the 1st thing we usually tell someone to do if they’re looking to sell their business is head over to BizScout.
BizScout guides you to the partners, data, and resources to do it right. Here’s what’s also cool:
BizScout has…
140,000+ active buyers
50,000 buyer-seller connections under its belt
A large population of well-educated buyers
The BizScout team also vets buyers before making a connection. And yet another cool thing? Tons of listings on BizScout have been in business for 5, 10, or even 20+ years.
Some of the best companies our Contrarian Academy members acquire have been in business for years on end. It’s why they’re so valuable.
They carry years of financials, customer relationships, and vendor connections… things that prove ridiculously useful once a deal gets done.
So much of selling a business is understanding what makes it valuable in a builder’s eyes.
Here’s how to think about it, step by step…
1. The Backwards Approach: Start with the End in Mind
Here's the secret to building a sellable business: You need to work backwards from what makes a business valuable in a buyer's eyes.
When you understand what buyers are looking for, you can design your business to be valuable whether you sell it or keep it.
Because the qualities that make a business attractive to buyers are often the same ones that make it attractive to you as an owner.
Think about it: A business that runs without you, generates predictable cash flow, and has systems in place is a business you'd want to own AND a business someone else would pay a premium for.
A job: Stops producing when you stop working. Requires your specific skills or relationships. Often too small to hire an operator, and likely can’t be transferred to someone else without them taking over the job.
An asset: Remains valuable even when you're not actively producing. Runs on systems and a team, not just you. Will continue running even if transferred to a new owner.
The difference between these two determines how valuable your business is. Everything in this guide is about moving from the first category to the second.
2. How Buyers Think About Value
To build something valuable, you need to understand how buyers calculate what they'll pay. Let's break it down.
The 4 things everyone will want to audit…
Simplicity check: If you can't explain what you do in one clear sentence, you probably can't systematize it. Complexity might impress people, but it doesn't transfer well.
The bus test: Imagine you vanish tomorrow. What percentage of operations continue normally? If the answer is close to zero, you're selling a job, not an asset. (That’s fine for some, just be honest about it.)
Dependency scan: Look at your top customer, your critical supplier, and your key employee. If losing any single one would crater the business, that's a vulnerability worth addressing.
Value definition: What's actually changing hands in a sale? The clearer you can articulate this (equipment, customer relationships, processes, brand), the more confident buyers become.
As you build, keep asking yourself these questions.
3. The Recipe for a Great Multiple
Want to sell your business for a premium multiple? Here's what matters most:
Be profitable. No profits, no sale.
Be growing. Upward trajectory commands premium pricing.
Be diversified. Multiple customers, channels, and products reduce risk.
Be predictable. Recurring revenue + steady growth. People want to be able to forecast.
Get these right and buyers will be confident in what they’re buying. Buyers can overlook slow growth or some customer concentration, but they probably won't pay a great multiple for it.
The bottom line: Profitability alone is necessary but not sufficient for a great multiple. Consider two businesses that have $500K profit but different margins:
Both produce the same $500K outcome, but Business B is far more efficient and has more room for error.
4. The SDE Formula: How Main Street Buyers Calculate Value
For Main Street businesses (roughly $500K to $5M in revenue), buyers use a metric called Seller's Discretionary Earnings (SDE) to determine the value the business generates for them.
SDE is considered the true earning power of your business. It's what you'd make if you owned the company debt-free, worked in it full-time, paid yourself $0, and only paid necessary expenses. It's the maximum theoretical earnings in a normal year.
Let's walk through an example for an HVAC business.
Notice how the net profit of $85,000 transforms into SDE of $201,000. That's 2.4x higher. This is why understanding SDE is critical both for building and valuing a business effectively.
One layer of nuance: In this example, we’re “adding back” the owner's salary because the buyer is going to be doing the work. If the buyer is hiring an operator, or if the seller has some special certifications (Master Plumber / Electrician), you may not get that full add back.
5. The Multiple: What Determines Your Final Value
Once you have your SDE, buyers multiply it by a number (the multiple) to arrive at your business value. Here are some typical ranges:
Using our HVAC example: With $201,000 in SDE, let's say this business earns a 3.2x multiple based on industry comparables and its specific strengths. That means:
$201,000 SDE × 3.2 multiple = $643,200 business value
But that’s just a generalized estimate. Where your business specifically lands depends on quality factors we'll cover next.
6. What Moves Your Multiple Higher
Within your industry's typical range, your specific multiple depends on how your business compares to others. Buyers look for:
Higher than normal profit margins
Recurring revenue (contracts, subscriptions, retainers)
Documented systems and processes
Strong reputation and online presence
Newer equipment and updated technology
Diversified customer base (no concentration risk)
Growth trajectory (SDE increasing year over year)
Low owner dependency (business runs without you)
If your business has these qualities, you'll land at the higher end of your industry's range (or maybe even above it). If it lacks them, you'll be at the lower end.
This is why building with these factors in mind is so valuable.
Here’s the beautiful irony
When you build a business that's designed to sell, you often end up with a business you never want to sell.
A business with recurring revenue, diversified clients, strong systems, low owner dependency, and healthy cash flow is a business that runs well, scales more easily, and gives you a sense of freedom.
Work backwards from what buyers want. Build those qualities into your business. And whether you sell or keep it, you win.
Want to join our groups of thousands of smart business builders and buyers?
Get access to our live expert calls (and so much more) when you join our Contrarian Academy or Growth Boardroom.
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