How do you value a service business with zero physical assets?

The multiple range is wide because service businesses vary enormously. Key factors: client concentration, recurring revenue, owner dependence, and the strength of the management team. A consulting firm with 10 employees might sell for 3-5x EBITDA if the owner is not the primary rainmaker.

I sold my marketing agency two years ago. We had zero physical assets. The buyer cared most about two things: recurring client contracts and whether I would stay on for a transition period. We ended up at 3.5x adjusted EBITDA.

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EBITDA multiple is standard, but you need to recast earnings to add back owner perks and one-time expenses. For a consulting firm, also consider the value of the client book separately. Some buyers will pay a percentage of retained revenue after the sale.

Client concentration is huge. If one client is more than 20% of revenue, expect a lower multiple or a earn-out structure. Buyers hate that risk.

I'm in the same boat. My IT services firm has no physical assets either. I've been told that recurring revenue is the golden ticket. If you have long-term contracts, you can command a higher multiple. If it's project-based, lower.

All of the above. But don't forget that the buyer is buying future cash flows. So you need to show a clear path to growth that doesn't depend solely on you. Document your processes, build a strong second-in-command, and get client contracts in writing. That will increase your multiple more than any spreadsheet.

Define 'zero physical assets.' You likely have computers, furniture, maybe a lease. Those are minor. The real asset is goodwill, which is essentially the value of your client relationships and reputation. Valuation methods: discounted cash floow, market comparables, and asset-based (which is useless here). Most small servce businesses use a multiple of seller's discretionary earnings (SDE) for deals under $2M.

Get a professional valuation. It's wortj the few thousand dollars to have a third-party report. Especially if you're planning to sell to an internal buyer or family member.

I've seen consulting firms sell for 4-6x EBITDA if they have strong recurring revenue and a deep bench. But those are the exceptions. Most small ones go for 2-3x. It's all about risk mitigation for the buyer.

One thing no one menti oned: your personal goodwill versus enterprise goodwill. If clients are loyal to you personally, that's personal goodwill and often not transferable. Buyers will discount for that. You need to shift relationships to the company brand and other team members before selling.

Good luck. And don't forget to normalize your financials. Remove personal expenses and one-time costs. That will give a clearer picture of true earnings.