What do buyers actually pay for?
A buyer is not purchasing your revenue, your equipment, or your reputation. He is purchasing a future stream of profit that arrives without you.
That sentence contains the whole subject. Everything that makes the profit more certain, more repeatable and less dependent on you raises the price. Everything that makes it fragile lowers it.
How is the number reached?
In small businesses, usually a multiple of adjusted profit, sometimes called owner earnings: what is left after real costs, with personal expenses and one-off items added back and a market wage for your role taken out.
That last adjustment surprises men. If the business only works because you take less than the job is worth, a buyer replaces you with someone paid properly and the profit shrinks on his spreadsheet before he makes an offer.
What raises the multiple?
Revenue that repeats rather than revenue that must be won again each month.
Customers spread wide rather than one account that is a third of the book.
Written processes, so the work does not live in somebody's head.
A team that runs the day without the owner in the building.
And clean books, which sound like housekeeping and are actually a discount when missing, because a buyer prices uncertainty.
What lowers it?
One man being the only closer. One customer being the whole business. Work priced too low to survive a market wage. Records that cannot be verified.
And the most common of all: an owner who is the product. If the customers bought him, there is nothing to sell.