Cookies Notice

We use cookies to provide you with the best experience on our website and to improve our communications with you. If you continue without changing your settings, we’ll assume you’re happy to receive all cookies on this website. If you wish, however, you can change your cookie settings at any time. Click “find out more” for detailed information about how cookies are used on this website.

Find out more OK

How Much Is Your Business Worth?

How Much Is Your Business Worth?

Determining the value of your business early on is imperative to a smooth sale. Setting a reasonable valuation is the first step to successfully negotiating all “must haves” during a sale process. However, valuation methodologies are unique and typically dependant on the various characteristics of a given business.  

Just as a business owner is likely to have a unique measurement of valuation, different types of acquirers will also assign their valuations based on a unique set of criteria. Below are four common valuation methodologies used to evaluate software businesses by acquirers:

Revenue Multiple

A revenue multiple is a quick valuation strategy that estimates a business’ value, based on revenue generated.  Measuring valuation based on revenue multiple will involve assessing revenues from the last fiscal year, trailing twelve months and forecasts. This valuation method is not used for businesses where revenues are in decline or have historically shown volatility. 

Recurring (Maintenance) Revenue Multiple

Recurring Revenue Multiple is another common valuation methodology, especially when valuing a Software-as-a-Service (SaaS) businesses.   Some acquirers prefer this valuation approach because recurring revenue is more predictable than net new or incremental upsell revenues. Recurring revenues also tend to show greater stability during economic downturns, and thus, they are typically indicative of a businesses’ sustainability.

Internal Rate of Return (IRR) Method

Also known as the Discounted Cash Flow method, the IRR approach is used to understand how desirable an investment is based on the rate of return on the invested capital.  For this method to be used, the business will need to have shown profits over a number of years, or the financial modeling has to show future profitability.


This valuation methodology is the least systematic of the four.  It relies on the value that has been put on companies with similar characteristics.  The difficulty with this is that no two companies are the same, and in the case of private companies reliable data is often difficult to come by.  This method should be treated as a rule of thumb.  However, on the other hand, it offers a point of comparison and “sanity check” to the other methodologies used.

Your Turn

Are you thinking about selling your business in the foreseeable future? Start preparing your business now so you can secure the valuation & deal you want. 

Continue Reading

Scroll To Top