A framework for valuing lower-middle-market businesses scores five factors: recurring revenue, owner dependency, add-backs, customer concentration, and financial quality. Sellers typically get 83-92% of enterprise value at closing, with earnouts appearing in 24% of deals and averaging 34% of the payment. Owners should improve their weakest factor and benchmark against comparable businesses to set a realistic range.
Score your company honestly on the 5: recurring revenue, owner dependency, add-backs, concentration, and the quality of your numbers. In lower-middle-market deals last quarter, sellers received roughly 83 to 92% of value at closing, according to the IBBA and M&A Source Market Pulse. The rest was in escrows, notes, earnouts, and adjustments. SRS Acquium found earnouts in 24% of private deals in 2025, With the median worth 34% of the closing payment. Weak documentation and heavy owner dependency are 2 of the most common reasons buyers ask for one. And watch the working capital peg. In a seasonal business, how normal is defined can quietly move your price. Score your company honestly on the 5: recurring revenue, owner dependency, add-backs, concentration, and the quality of your numbers. Pick the weakest one and work on it for the next 2 quarters. Then, benchmark against the right comparison— your size, your industry, your most likely buyer. That gives you a realistic range. And a realistic range is what lets you choose well among keeping, growing, financing, selling, or bringing in a partner. Same profit can mean very different prices. And most of the difference is in your control if you start early.
