You know your revenue to the dollar. Ask any owner in this industry what they did last year and the answer comes back without a pause. It is the number on the conference badge and the number at the bar.
Ask the same person what the business is worth and the answer changes shape. It becomes a guess, or a story about what somebody down the road supposedly got, or a figure a buyer said out loud two years ago that has been sitting in the back of the owner's head ever since.
That gap is expensive. Offers arrive in this industry now, unsolicited, from people who have already done the arithmetic. When one lands and you have not done yours, you are negotiating about your uncertainty, and the other side is considerably better at that than you are.
So here is the arithmetic. Almost nobody in real estate media has ever been walked through it.
Nobody is buying your revenue
Revenue tells a buyer how much work moved through the building. It says nothing about what was left over, and what was left over is the only thing being purchased.
Take two agencies both doing $2 million. One keeps 8% after the founder pays himself properly. The other keeps 22%. The first is a job with a large payroll attached. The second is an asset. We have audited two agencies within $50,000 of the same revenue where one kept 45% and the other kept 11%, and the buyer's number for each was not close.
A lot of monopoly money doesn't mean you're making a lot of money. Our profit was a lot smaller once you shook out all of our payouts and all.
That owner had a team of 14 and margins around 17% when the first buyer came, and the buyer's number reflected the 17%, not the headcount. Revenue is the only number the industry talks about publicly. Nobody compares margins out loud. So owners spend a decade chasing volume, volume gets bought with headcount, and three years later the company is meaningfully larger and worth roughly what it was before.
The bottom line of your P&L is the wrong earnings number too
The problem cuts the other way as well. The profit line on your P&L exists to make your tax bill as small as the law allows. Your accountant did that job well, and the job was to move as much as legitimately possible into the expense column. Value your agency off that line and you are the only person in the room arguing that your business is worth less than it is.
The number buyers use is adjusted EBITDA: earnings before interest, taxes, depreciation, and amortization, with corrections applied so the figure reflects what the business produces for a normal owner rather than for you specifically. Those corrections are called add-backs. Owners who have never been through a sale underestimate their own adjusted EBITDA, usually by a wide margin, because nobody has ever shown them which expenses come back.
The stakes are lopsided because valuation is two numbers multiplied together: adjusted EBITDA and the multiple applied to it. At a 4× multiple, every $10,000 of legitimate add-back you can document is $40,000 of enterprise value. An owner who has quietly absorbed $75,000 of personal and one-time expenses into a P&L built for tax season isn't off by $75,000. At 4× they are off by $300,000, and they will never hear it from the buyer, who has no reason to raise a hand.
One caveat on where that math applies. Under roughly $300,000 in revenue, a buyer prices the client book off revenue, not earnings, so add-backs move the buyer's confidence more than the buyer's number. From there upward, every documented dollar counts at the multiple.
Four categories matter.
