Understanding What Your Business Is Actually Worth
After years of building furniture and a reputation, you’re ready to move on. The question that keeps you awake: what is this all worth? The answer is more complex than adding up equipment value and customer lists. Your woodworking business has unique characteristics that affect its value—and finding the right buyer requires understanding what you’re actually selling.
The 3x Revenue Rule: Where It Comes From
You’ll hear that small businesses sell for 2-4 times annual revenue. For woodworking businesses, the more accurate metric is typically 2-4 times seller’s discretionary earnings (SDE)—your net profit plus your salary plus any personal expenses running through the business.
Example calculation:
- Business net profit: $50,000
- Owner’s salary (or what you pay yourself): $80,000
- Personal vehicle expense through business: $8,000
- Health insurance through business: $12,000
- Seller’s Discretionary Earnings: $150,000
At 3× SDE, this business would be valued at $450,000.
But the multiple varies based on factors specific to your business.
Factors That Increase Value
Recurring customers: Repeat business from interior designers, contractors, or direct clients who come back demonstrates reliable revenue. A shop where 60% of revenue comes from repeat customers is worth more than one dependent on constant new client acquisition.
Systems and documentation: Documented processes, standard operating procedures, and pricing systems mean a new owner can step in and operate. If everything is in your head, the business dies when you leave.
Transferable relationships: Supplier accounts, contractor relationships, and customer connections that will transfer with the business add value.
Brand recognition: A reputation that draws customers independent of your personal involvement commands premium pricing.
Trained employees: A shop manager and skilled employees who can continue operations reduce buyer risk.
Real estate: If you own the shop building, this adds significant value (and may be sold separately or leased to the buyer).
Growth trajectory: A business with increasing revenue is worth more than one that’s flat or declining.
Factors That Decrease Value
Owner dependency: If customers come specifically for your work, your departure ends their loyalty. The business is only as valuable as what continues without you.
Aging equipment: Machinery that needs replacement soon is a liability, not an asset.
Lease issues: A lease expiring soon or a landlord who won’t transfer creates uncertainty.
Inconsistent financials: Revenue that swings wildly suggests an unstable business.
Deferred maintenance: Equipment, facilities, or customer relationships that have been neglected require buyer investment.
Key customer concentration: If 40%+ of revenue comes from one customer, losing that customer devastates the business.
Preparing Your Business for Sale
Start preparation 2-3 years before you want to sell:
Financial Cleanup
- Separate personal and business expenses completely
- Keep detailed, accurate books for at least 3 years
- File tax returns accurately (buyers verify against your books)
- Identify and document all revenue streams
- Establish clear inventory valuation
Operational Documentation
- Write down how you do things (finishing procedures, pricing methods, quality standards)
- Document supplier relationships and terms
- Create customer database with contact history
- Organize design files and project records
- List all equipment with maintenance history
Reducing Owner Dependency
- Train employees to handle operations without you
- Have staff build customer relationships directly
- Create a shop manager role if you don’t have one
- Stop being the only one who can do critical tasks
Physical Assets
- Service and maintain all equipment
- Dispose of obsolete or non-working machinery
- Organize shop for efficiency (buyers will visit)
- Address any safety or code issues
Types of Buyers
Individual craftspeople: Someone wanting to buy themselves a job—often a woodworker looking to move from employee to owner or someone leaving another career.
- Typically seek smaller businesses ($100,000-$500,000 range)
- Limited capital; may need seller financing
- Value established customer base and reputation
Strategic buyers: Existing woodworking businesses seeking expansion—adding capacity, market, or capabilities.
- More capital available
- May value customer list and brand most highly
- Might relocate operations or merge into existing facilities
Employees: Your current team buying you out.
- Know the business intimately
- Continuity for customers and suppliers
- Usually need seller financing due to limited resources
Search funds/searchers: Individuals backed by investors looking to buy and operate a business.
- Growing category of buyers
- More sophisticated about valuation
- Seek businesses with growth potential
Deal Structures
Few small business sales are all-cash at closing. Common structures:
All Cash
Buyer pays full price at closing. Rare for woodworking businesses; usually only from strategic buyers with existing capital.
Seller Financing
You receive a down payment (typically 30-50%) and carry a note for the balance, paid over 3-7 years. Common structure because buyers lack full purchase price and bank loans for small businesses are difficult.
Risk: If the buyer fails, you may need to take the business back.
Earnout
Portion of purchase price depends on business performance after sale. Might be structured as “base price plus 20% of revenue over $X for 3 years.”
Bridges valuation gaps but creates complexity and potential disputes.
Hybrid
Combination of cash, seller note, and earnout. Example: $200,000 cash at closing, $150,000 note over 5 years, plus earnout on certain revenue targets.
The Sales Process
1. Valuation
Get professional valuation from a business broker or appraiser experienced with small manufacturing businesses. Cost: $2,000-$5,000. Worth it for realistic expectations.
2. Decision: Broker or Direct Sale
Business brokers charge 8-12% commission but handle marketing, screening, and negotiation. Direct sale saves the fee but requires more of your time and exposes you to unqualified buyers.
3. Confidential Marketing
Business is listed without revealing identity. Interested buyers sign NDAs before receiving details. Protect customer and employee relationships during the process.
4. Buyer Screening
Verify buyers have financing capability before sharing detailed information. Require proof of funds or lending commitment.
5. Negotiation
Price, terms, transition period, non-compete agreements, asset inclusion—everything is negotiable.
6. Due Diligence
Buyer examines your financial records, customer contracts, equipment condition, lease terms, and anything else affecting value. This can take 30-90 days.
7. Closing
Purchase agreement, transfer of assets, payment, and transition begin.
Transition Period
Most buyers want the seller to remain for a transition period—typically 3-12 months. During this time, you:
- Introduce the new owner to key customers and suppliers
- Train on operations and systems
- Transfer relationships and knowledge
- Handle questions and problems that arise
This may be included in the purchase price or compensated separately. Common: 6 months at reduced salary.
Tax Implications
How the sale is structured significantly affects your tax burden:
Asset sale: Buyer purchases equipment, inventory, customer list, and goodwill. Different asset classes have different tax treatments. Allocations are negotiable and matter significantly.
Stock/entity sale: Buyer purchases the business entity (LLC, corporation). Simpler but may not be possible depending on your structure.
Installment sale: Seller financing allows spreading gain recognition over multiple years, potentially reducing tax rates.
Consult a tax advisor before signing anything. The difference between good and poor structuring can be tens of thousands of dollars in taxes.
After the Sale
Plan for life after selling:
- Non-compete agreements: Standard; typically 3-5 years within a geographic radius. Know what you’re agreeing to.
- Identity adjustment: You’ve been “the woodworker” for decades. Who are you now?
- Staying busy: Teaching, hobby projects, consulting—many sellers need meaningful activity.
- Financial management: Proceeds need investment and drawdown planning.
When to Walk Away
Sometimes the best business decision is recognizing when to not sell:
- Buyers offering dramatically below fair value
- Terms that put too much risk on you
- Buyers who don’t have the capability to succeed
- Economic conditions that depress valuations temporarily
If the business is profitable and you’re able to operate it, waiting for better conditions may make sense—unless personal circumstances require immediate exit.
The Bottom Line
Selling a woodworking business is a once-in-a-lifetime transaction with permanent consequences. The value you receive depends on preparation years before the sale, finding the right buyer, and structuring a deal that works for both parties.
Start planning now. Clean up finances, document operations, reduce your indispensability. When you’re ready to sell, the work you’ve done will translate directly into value—the final reward for the business you built.
