# How much is the business worth?

> How much is my business worth? ARR, yearly owner earnings and a multiple: how to turn a small subscription business's numbers into a price range, what moves the multiple, and how an offer compares.

- Course: [From Idea to Profitable Product: Building Without Investors](https://productovi.com/courses/bootstrapped-product.md)
- Module: Without heroics, and for sale
- Lesson 29/30, ~28 min
- Source: https://productovi.com/courses/bootstrapped-product/what-the-business-is-worth

## Is six million a lot? Start from ARR

**Alex Tutor:** Axle's offer is still on the table, and GarageDesk's founders lean on you and me to make sense of it.

**Oscar:** Six million sounds enormous. Then I wake up at night thinking: what if it's cheap?

**Alex Tutor:** Both feelings are normal, and neither is a number. Buyers of small subscription businesses usually start from a yearly figure and multiply it. The simplest yearly figure is **ARR**, annual recurring revenue: MRR × 12.

**Sofia:** Why a yearly figure and not the monthly one?

**Alex Tutor:** Because a buyer thinks in years: how much the business will bring over the years they own it, and how soon the price comes back to them.

**Nina:** MRR is 165,000 this October.

> **Exercise:** GarageDesk's MRR is 165,000 UAH. What is its ARR, in UAH?

## ARR multiple: a multiple of revenue

**Alex Tutor:** The number you multiply by is the **valuation multiple**. It isn't a law of nature: it depends on the buyer, the market and the business itself.

![A small garage stands on one pan of a big scale; an appraiser balances it by adding several identical money bags to the other pan.](https://productovi.com/courses/bootstrapped-product/inline/what-the-business-is-worth-illustration-2.webp)

**Alex Tutor:** For our exercise, take an illustrative range of 2 to 4 times ARR for a small, profitable, growing subscription business. Real deals can land outside it, so treat it as a way to think, not a price list.

**Sofia:** So where does Axle's six million sit in that range?

$$
V \approx \text{ARR} \times m_{\text{rev}} \qquad V \approx E \times m_{\text{profit}}
$$

*Value V as a multiple of ARR, or of E, the yearly owner earnings (profit before the founders' own pay). The multiples m are illustrative and depend on the buyer and the business.*

> **Exercise:** Axle offers 6,000,000 UAH in total for GarageDesk, whose ARR is 1,980,000 UAH. What multiple of ARR is that? Round to one decimal.

## Profit multiple: owner earnings before founders' pay

**Nina:** Revenue isn't what a buyer takes home, though. Costs matter.

**Alex Tutor:** Right, so check it a second way, on profit. For a business run by its owners, buyers often look at profit before the founders' own pay, because the buyer decides who to pay for those roles and how much.

**Nina:** MRR 165,000 minus 67,000 for Martha, Ethan, tools and SMS and the accountant. Before our two salaries.

**Alex Tutor:** One caution: the buyer will have to pay someone to do your jobs, maybe more than you pay yourselves. That's one reason the profit multiple stays modest.

> **Exercise:** GarageDesk's MRR is 165,000 UAH, and its monthly costs without the founders' pay are 67,000 UAH. What are its yearly owner earnings (profit before the founders' pay), in UAH?

**Alex Tutor:** Oscar has a shortcut in mind. Check it.

> **Exercise:** **True or false:** a buyer should value GarageDesk on the profit left after the founders' current pay: (165,000 − 67,000 − 80,000) × 12 = 216,000 UAH a year.

## Small business valuation: a range, not a number

**Alex Tutor:** Now both ways. For profit, take an illustrative 3 to 5 times yearly owner earnings. Compute the four ends and see where they overlap.

![Two spotlights shine on a stage from different angles; a price tag rests in the orange glow where their circles overlap.](https://productovi.com/courses/bootstrapped-product/inline/what-the-business-is-worth-illustration-3.webp)

*Two ways of valuing give a range, not one magic number.*

**Oscar:** Revenue gives about 4 to 7.9 million, profit about 3.5 to 5.9. They overlap between about 4 and 5.9 million.

**Alex Tutor:** So six million in total is a fair headline, right around the top of the overlap. The real question is how much of it is certain.

**Alex Tutor:** Oscar wants one line for his notes. Which one would you write?

> **Exercise:** Which line describes GarageDesk's value better?

> **Exercise:** Match each illustrative multiple with the value it gives GarageDesk (ARR 1,980,000 UAH, yearly owner earnings 1,176,000 UAH).

## What moves the multiple

**Sofia:** What would push GarageDesk towards the top of the range?

**Alex Tutor:** Growth: 64 shops a year ago, 240 now. Churn down to about 4%. No customer too big. Written procedures and a team, so it runs without heroics. Clean books in a separate business account.

**Nina:** And in January about 60 shops that still pay 600 a month move to 750. That's 60 × 150 = 9,000 more MRR without a single new shop.

**Alex Tutor:** Let's put that fact in a buyer's terms.

> **Exercise:** In January about 60 shops move from 600 to 750 UAH a month. At an illustrative 3× ARR, how much value does this price step add to GarageDesk, in UAH, if all 60 shops stay?

**Alex Tutor:** Exactly the kind of fact to put in front of a buyer. What pulls it down: anything that depends on one person, a messy contract, or a customer who could leave with a big share.

**Oscar:** So the procedures we wrote in August have a price tag now.

> **Exercise:** Which facts about GarageDesk are likely to raise the multiple a buyer is willing to pay? Choose all that apply.

## The certain part: cash at closing

**Alex Tutor:** Back to the offer. The six million is fair; the four million at closing is only about 2× ARR, the bottom of the range. The other two depend on MRR reaching 200,000 a year after closing.

![A cheque slides across a table into a founder's hand while a second, ghostly cheque floats above it.](https://productovi.com/courses/bootstrapped-product/inline/what-the-business-is-worth-illustration-4.webp)

**Nina:** So we shouldn't argue about the six. We should argue about the split.

**Oscar:** Right. Six sounds nice; four is what actually lands in the bank.

![Revenue multiples give about 4 to 7.9 million UAH and profit multiples 3.5 to 5.9, overlapping at 4 to 5.9. Axle's 6 million total is fair; only 4 million is certain.](https://productovi.com/courses/bootstrapped-product/diagrams/m8-l3-valuation-range.png)

*Two methods give a range; the split decides what is certain.*

**Oscar:** Can I explain this to my wife tonight in a few sentences?

**Alex Tutor:** Try it. We'll draft it together.

> **Exercise:** In 4–5 sentences, explain to Oscar's family whether Axle's offer (4,000,000 UAH at closing + 2,000,000 UAH earn-out, paid only if MRR reaches 200,000 UAH within a year after closing) is a fair price for GarageDesk and what the founders should negotiate. Use these numbers: MRR 165,000 UAH, so ARR is 1,980,000 UAH; costs without the founders' pay 67,000 UAH a month, so yearly owner earnings are 1,176,000 UAH; illustrative multiples of 2–4× ARR or 3–5× yearly owner earnings; in January about 60 shops move from 600 to 750 UAH a month.

> **Key ideas**
>
> - **ARR** = MRR × 12: 165,000 × 12 = **1,980,000 UAH**.
> - Yearly owner earnings = (MRR − costs without the founders' pay) × 12: 98,000 × 12 = **1,176,000 UAH**.
> - Value ≈ ARR × revenue multiple, or earnings × profit multiple. Multiples here are **illustrative** (2–4× ARR, 3–5× earnings); real ones depend on the buyer and the market.
> - GarageDesk: roughly 4 to 5.9 million where both methods overlap. Axle's 6,000,000 ≈ 3× ARR in total, but the certain 4,000,000 ≈ 2× ARR.
> - Growth, low churn, no big customer, procedures, clean books and an announced price step raise the multiple; dependence on one person and legal mess lower it.

**Alex Tutor:** Next time, the last lesson: the letter of intent, six weeks of checks, and the earn-out.

- Previous lesson: [Sell, keep or raise: an exit strategy](https://productovi.com/courses/bootstrapped-product/sell-keep-or-raise.md)
- Next lesson: [How to sell a business: the deal](https://productovi.com/courses/bootstrapped-product/the-deal.md)

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