Technical documentation of our valuation algorithm, industry multiples, and risk adjustment methodology. No fluff—just the actual implementation.
Maps business to one of 50+ predefined industries with NAICS codes. Falls back to "general_business" if unmatched.
Implementation: /lib/valuation/industry-multiples.ts
Converts raw financials to normalized SDE using: SDE = EBITDA + Owner Salary + Owner Benefits + Discretionary Expenses
Owner salary estimated by revenue tier when not provided ($50K to $200K range based on business size).
Implementation: /lib/valuation/financial-normalization.ts
Applies 8 independent risk factors with documented adjustment ranges. Total adjustment capped at ±1.0x.
Implementation: /lib/valuation/risk-adjustments.ts
Applies adjusted industry multiples to normalized financials. Generates low/mid/high range using industry volatility.
Adds inventory + FF&E (fixtures, furniture, equipment) to multiple-based valuation for total enterprise value.
We maintain hardcoded multiples for 50+ industries based on BizBuySell and IBBA market data. These are static values updated quarterly, not live data feeds.
Eight independent factors that adjust base multiples. These reflect actual discount rates observed in transaction data and SBA lending criteria.
| Factor | Range | Multiple Impact |
|---|---|---|
| Customer Concentration | 0-100% (top 3 customers) | -0.5x to +0.1x |
| Revenue Growth Trend | Declining to +25% CAGR | -0.45x to +0.35x |
| Owner Dependency | 60+ hrs/week to <20 hrs | -0.4x to +0.3x |
| Recurring Revenue | 0-100% | -0.1x to +0.4x |
| Lease Risk | <1 year to 10+ years remaining | -0.45x to +0.2x |
| Business Age | <3 years to 20+ years | -0.3x to +0.2x |
| Employee Count | Solo operator to 15+ employees | -0.1x to +0.15x |
| Rent as % Revenue | >15% to <5% | -0.2x to +0.1x |
SDE Size Premium/Discount: Additional adjustment based on business scale. Ranges from -0.4x (<$50K SDE micro-businesses) to +0.5x (>$1M SDE institutional quality). Total cumulative adjustment capped at ±1.0x.
Six-factor weighted model that generates A-F grades (0-100 scale). Used for buyer matching and listing quality assessment.
Asking price vs. calculated mid valuation
Revenue growth trend + recurring revenue bonus
Customer diversification (inverted scoring)
Owner hours, employee count, business age
Completeness of provided data
Asking price position within range
To be clear about what Succedence is NOT:
All methodology code is available in /lib/valuation/ directory. Calculations are independently reproducible.