When we first started thinking about selling, I Googled it.
That is the honest answer. I did not talk to an accountant. I did not consult a broker. I typed something into a search bar and read what came back.
What I found was the industry rule of thumb. Two to three times annual profit. That was apparently the going rate for a hospitality business.
So I did the maths on our numbers and came up with a figure. And for a while, that figure felt real. It felt like something we had earned. Something we could walk away with after everything we had put in.
It was exciting. Genuinely exciting. The idea that all those years of early mornings and late nights and holding everything together had built something with an actual number attached to it.
Then we kept going. And the number started to change.
The first broker confirmed the rough figure without asking to see our books. Which felt like validation at the time. Looking back it was just someone telling us what we wanted to hear before they signed us up.
The second broker, someone a friend had recommended and actually trusted, was different. She did not talk about the number first. She told us to check the lease.
We know how that ended.
The business was not worth two and a half times profit. It was worth nothing. Because you cannot sell something that cannot be transferred. The number was irrelevant once the lease problem surfaced. Exciting one week, closed the next.
That gap, between the number in your head and the reality a buyer actually faces, is where most of these situations go wrong.
Here is what I understand now that I did not understand then.
A valuation multiple is not a fixed rule. It is a starting point that moves in both directions depending on what the business actually looks like to a buyer.
The multiple goes up when the business has clean financials a buyer can verify, a solid lease with time remaining, systems that run without the owner, consistent and repeatable revenue, and staff who will stay after the sale.
The multiple goes down, sometimes to zero, when any of those things are missing or broken.
Two to three times profit is what a good hospitality business sells for. A business with problems sells for less. A business with serious problems, like a lease that prevents transfer, does not sell at all regardless of the profit figure.
The number you calculate from a Google search assumes everything else is in order. In most small hospitality businesses, everything else is not in order.
There is another layer most operators never think about.
The profit figure you use matters as much as the multiple you apply to it.
As I wrote in the tax trap edition, if you have been running personal expenses through the business to minimise tax, your stated profit is lower than your real profit. Which means the multiple gets applied to the wrong number. Which means your valuation is lower than it should be before a buyer has even asked a single question.
Clean profit times a fair multiple equals a real valuation.
Tax-minimised profit times an optimistic multiple equals a number that falls apart the moment someone looks closely.
Most operators are working with both problems at once without realising it.
I learned most of this the hard way and then filled in the gaps through courses and hours of YouTube.
Nobody sat me down and explained it when it mattered. No broker walked me through what actually drives value in a small hospitality business. No accountant flagged that the way we were managing our books was working against us.
The information existed. It was just scattered, technical and usually presented in a context that assumed you already understood the basics.
You now understand the basics.
Your business is worth a multiple of your real, clean, verifiable profit, adjusted up or down based on how well it performs against the things buyers and their advisors actually care about.
That is the number worth understanding. Not the one from a Google search. Not the one a broker gives you before they have seen your financials. The real one, built from real numbers. Because you cannot make good decisions about your business based on a figure that falls apart the moment someone looks closely.
Next edition: your best employee might also be your biggest risk. Here is what key person dependency actually looks like.