The Option Strategy Value Assessment™ | The Compass Group of WNY

Option Strategy Value Assessment™

Calculating your Option Strategy Value Assessment…

The Option Strategy Value Assessment™

Know what your business is worth, what is holding that number back, and what it would take to have real options.

Take a minute to read how this works (about 15 to 20 minutes to complete). Your Start button stays with you at the bottom of the screen, ready whenever you are.

First, what is an Option Strategy?

Most owners are told they need an exit strategy, and most owners tune it out, because selling is not on the radar this year. An Option Strategy flips that. The point is not the exit. The point is building enough value, and enough independence from you, that you get to choose what happens next: sell, step back, hand it to family, refinance, or simply own a calmer and more profitable business. The moment you have options is the moment your value is highest. It is also your best protection against the moments nobody schedules, the 5 D's: death, disability, divorce, distress, and disagreement.

What this assessment does

It walks you through the same math a serious buyer uses, in plain language, and turns it into a clear picture you can act on. In about 15 to 20 minutes you will:

  • Build your true earnings (SDE) line by line, the way a buyer would recast them.
  • Match your industry to real Main Street sale multiples, both typical and Best-in-Class.
  • Score your readiness across the drivers that actually move value.
  • See an estimated value today, your Best-in-Class potential, and the gap between them.
  • Value any owned real estate separately, on the income it can support.
  • Get your top opportunities, ranked, so you know exactly where to start.

What to expect, and how to use it

This is a fast, directional read, not a formal appraisal, and it is only as good as the numbers you feed it. Estimates are fine, round numbers are fine, and you can always refine later. It helps to have last year's tax return or profit and loss handy, along with your own honest sense of what runs through the business. Treat the result as a starting point and a to-do list: the gap it shows you is the value you have not captured yet, and the opportunities it ranks are the fastest way to start closing it. Run it again as the business changes, the same way you would recheck a portfolio.

Why we use SDE, not EBITDA

Both measure earnings, but they answer different questions, and for a Main Street business the buyer almost always uses SDE. Here is the difference in plain terms:

SDE
Seller's Discretionary Earnings

The total financial benefit one working owner takes from the business in a year: net profit plus your pay, your perks, interest, depreciation, and one-time items, all added back in. It answers the question a small-business buyer is actually asking: if I run this myself, how much will it put in my pocket? This is the number typical Main Street deals are priced on.

EBITDA
Earnings Before Interest, Taxes, Depreciation & Amortization

Earnings after paying a full-time manager to run the business in the owner's place. It does not add back an owner's salary, because it assumes the owner has been replaced by hired management. That fits larger, manager-run companies, and it is the language of private equity and bigger deals, but it understates the take-home reality of an owner-operated business.

Rule of thumb: businesses under roughly $3M to $5M in revenue, where the owner is central to operations, trade on SDE. As a company grows and runs on management rather than the owner, buyers shift to EBITDA. This assessment is built for the Main Street, owner-operated world, so it uses SDE.

4 C's of Value 3 Legs of the Stool SDE Multiples Main Street Market Data
Read through how it works, then begin whenever you're ready.

Where Should We Send
Your Results?

Tell us who you are, then we will build your numbers together, one step at a time.

Let's Start With You

Your information is used solely to personalize your results and report.

Step 1: Find Your Business's True Earnings (SDE)

Before we can talk about what the business is worth, we need one number: your Seller's Discretionary Earnings. Don't worry, we'll build it together, line by line, using numbers you already have.

What is SDE, and why does it matter?

SDE is the total financial benefit one working owner gets from the business in a year: the profit on paper plus everything the business pays you and pays for you. Buyers of owner-operated businesses don't price the deal on "net income from the tax return." They price it on SDE, because the tax return is designed to show the smallest legal profit, while SDE shows the real money the business generates for its owner. Almost every small business's SDE is meaningfully higher than its taxable profit, which means this exercise usually makes your business look better, not worse.

Where to find these numbers: Last year's tax return (Schedule C if you file as a sole proprietor, or your business return), your year-end profit & loss from QuickBooks or your bookkeeper, and your own knowledge of what personal items run through the business. Estimates are fine, you can refine later. Round numbers are okay.

Part A: Start With the Basics

Your most recent full year. Whole dollars, no commas needed.

Everything the business brought in last year (sales, services, online orders, contract or recurring revenue) before any expenses.
What you paid for the products or direct materials you sold. On a Schedule C this is Line 4, "Cost of goods sold." Enter 0 if you're a service business with no physical products.
Everything else the business paid: rent, utilities, wages (including your own pay), insurance, supplies, advertising, interest, depreciation, total expenses other than the products above. It's fine if this includes personal items; we'll add those back next.
Revenue − cost of goods − expenses. A small or even negative number here is completely normal for an owner-run business, the add-backs below are where the real earnings appear.

Part B: The Add-Backs (this is where your real earnings show up)

A buyer will own the business without paying for your salary, your perks, or last year's one-time surprises. So we "add back" every dollar the business spent that really went to you or won't happen again. Enter 0 for anything that doesn't apply, every field below is optional.

Any salary, wages, or owner draws you took, if they were included in the expenses above. If you never paid yourself through the books, leave this at 0.
The employer-side taxes on your own wages. A quick estimate: about 8 to 10% of your pay. Skip if you took draws instead of payroll.
Interest on business loans or credit lines. A buyer arranges their own financing, so your interest doesn't count against the business.
A paper-only expense, no cash actually leaves the business. On a Schedule C it's Line 13. Your tax preparer can point to it in seconds.
Add up anything the business paid that's really personal: your health insurance, cell phone, the personal share of your vehicle, travel, meals, subscriptions. Honest estimate is fine, buyers expect this line.
Things that won't repeat: a legal bill, storm damage repair, a website rebuild, a one-off buyout of a vendor. Not regular maintenance.

Part C: Normalizing Adjustments (the honest subtractions)

Part B moved your number up by removing costs that won't follow the business to a buyer. This part does the reverse, and it's just as important: it removes earnings that won't repeat or costs a buyer will have to pay that aren't fully in your books today. Doing this yourself, before a buyer's accountant does it for you in due diligence, is what keeps your SDE credible and your deal from unraveling at the finish line. Enter 0 for anything that doesn't apply; every field is optional.

Why a smart seller does this on purpose: An inflated SDE doesn't get you a higher price, it gets you a lower one. Buyers (and their lenders) re-cast your earnings during diligence, and every surprise subtraction they find late in the process erodes trust and re-trades the deal downward. A number you've already normalized is a number they can finance and defend. Honest math up front protects your price.
Applies if you own your location. If you own the building and the business pays little or no rent, its earnings are quietly subsidized by free space a buyer won't get. A new owner pays market rent. Example: a space that would rent for ~$21,000/yr on the open market. Enter market rent minus whatever the business already pays itself.
SDE already assumes one full-time working owner. Any other work done for free must be hired out by a buyer. Example: a family member keeps the books and covers weekends unpaid, so a bookkeeper plus part-time help runs roughly $9,000/yr. Enter the annual cost to replace help beyond one owner.
The mirror image of Part B's one-time expenses. A windfall that won't happen again inflates a normal year. Example: a single unusually large project worth $12,000, an insurance payout, or a one-off grant. Subtract it so the buyer prices a typical year.
Recurring costs you currently skip or absorb that a buyer will actually pay to keep revenue steady. Examples: you do all marketing yourself and spend $0, so a buyer budgets ~$4,000/yr; a long-time employee paid under-market whose wage must rise to retain them; deferred equipment upkeep that becomes an annual line. Enter the yearly gap.

Part D: Resale Inventory or Transferable Assets (if applicable)

Some businesses carry resale inventory or major equipment that is typically sold on top of the business price. The SDE multiple buys the business itself (the name, the customers, the systems, the lease); saleable inventory or equipment is a separate check at closing. If this applies to you, two rules: count only what you own (exclude consignment or vendor-owned goods), and count it at what you paid, not the retail tags. If you're a service business with no resale inventory, leave this at 0.

Your best estimate of what you paid for saleable inventory or transferable equipment the business owns and would convey at closing. Exclude anything on consignment or leased. Leave at 0 if not applicable.

Part E: Real Estate You Own (if applicable)

If the business owns the building or land it operates from, that real estate is a separate asset. It rides on top of the business value, and it is worth what its income can support: the rent a tenant would pay, converted to value at the going rate for your area. A strong business paying healthy rent supports a strong building value. A building the business cannot support with market rent is not worth more just because you wish it were. Own your space? Make sure you entered the market-rent adjustment in Part C, so your business value and your real estate value are never double-counted. Rent from a landlord, or own no property? Leave this at 0.

The full-year market rent a tenant would pay for your building or lot, the same market-rent basis behind the Part C adjustment (before subtracting what the business already pays itself).
Required if you entered market rent above. Property taxes, building insurance, and structural upkeep you carry as the owner, not the business's day-to-day bills. Subtracting these turns rent into net operating income, which is what value is really built on.
The return a local real estate investor expects, as a percent. Small-market commercial property often runs roughly 7 to 10 percent. A lower cap rate means a higher value. A local appraiser or commercial broker can give you the right figure; 8 percent is a reasonable placeholder.
One important exception: if your land carries value beyond the income it produces (waterfront, a prime corner, or development potential a buyer would pay up for), the income method above will understate it. In that case the property needs a formal real estate appraisal, and it should be handled as its own line rather than a rule of thumb.
Your Seller's Discretionary Earnings
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Fill in Part A to see your number build in real time.
This is the number your valuation is built on. Confirm it looks right before continuing.

Step 2: Confirm Your Numbers

We've carried your figures over from the SDE worksheet. Confirm they look right, tell us your industry, and we'll begin the readiness assessment.

Financial & Industry Inputs

These are pre-filled from your worksheet, adjust if needed. All data is used only to generate your personalized assessment.

How your SDE was built
Complete the worksheet to see your SDE breakdown here.
Your Seller's Discretionary Earnings —
🔒 Carried over from your SDE worksheet. To change it, go back and edit Part A.
🔒 Calculated from your worksheet. To change it, go back and adjust your add-backs or adjustments.
Count everyone including yourself and part-timers.
Search by NAICS code number or by industry description, then pick your match from the list. This sets the SDE multiples used in your valuation.
Question 1 of 50 Category
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Your Option Strategy Value Assessment™

Prepared exclusively for your business