Risk-adjusted multiples — the six-factor slider.

A multiple is a shorthand for risk, so applying the same multiple to every agency ignores the thing the multiple is supposed to capture. The disciplined approach treats the multiple as a slider: a defensible starting point set by the agency's size, then adjusted on the specific risks that make this book more or less certain than the average. Done right, it produces two numbers — what the asset is worth, and the most a buyer can pay and still earn their return.

§ 01 · The baseline bandsWhere the slider starts.

The baseline is keyed to revenue tier because size correlates with the structural risks that price a book. A sub-$500K agency runs 6×–8× because it's usually owner-dependent with thin systems and higher attrition risk. A $500K–$2M agency runs 7×–10× because it has growing infrastructure, multiple producers, a real management system, and diversified carriers. A $2M+ agency runs 8×–12× because its operations are mature, its revenue distributed, and its systems independent of any one person. The buyer starts at the midpoint of the right band and moves from there — the band is the anchor, the factors are the adjustment.

§ 02 · A slider, not a formulaSix factors, documented.

The six factors and their adjustment ranges are the heart of the method. Each one is a fact a buyer can verify, and each moves the multiple by a documented amount.

When key-person risk is high, the discipline goes further than the multiple: assume 15%–30% of that person's book attrites in the first 18 months and model it explicitly, rather than trusting the deal to protect the revenue. Technology debt carries its own cost too — a management-system migration alone runs $10K–$25K before retraining and integration risk. The factors that feed this slider are exactly the red flags in seller financials, read forward into price.

§ 03 · A worked exampleFrom baseline to price.

Take a $1.2M-revenue agency with $500K of normalized EBITDA. The baseline midpoint for the tier is about 8.5×. Retention verified at 94% adds +0.75×; carrier concentration at 45% subtracts −0.75×; loss ratios are neutral; the owner producing 30% of revenue subtracts −0.25×; clean data quality adds +0.25×; growth is neutral. The adjustments roughly cancel, landing the risk-adjusted multiple back at 8.5× — which on $500K of EBITDA implies a $4.25M maximum price. That's not a number pulled from the air or anchored to the seller's ask; it's a baseline moved by six documented facts, which is exactly what makes it defensible when a lender or an investment committee asks how the price was set.

§ 04 · The walk-away ceilingWhat you can actually finance.

The risk-adjusted multiple says what the asset is worth; the walk-away price says what a buyer can pay and still earn their return — and it's derived from the cost of capital, not the multiple. Take a deal financed 70% debt at 6% and 30% equity at a 20% required return: the blended hurdle is about 10.2%, which on $500K of EBITDA sets a ceiling around $4.9M — roughly a 9.8× walk-away cap. The rule that follows is clean. If the risk-adjusted multiple sits below the walk-away cap — 8.5× of asset value against a 9.8× affordability ceiling — the deal works, with margin. If it sits above, the asset may genuinely be worth what the seller wants, but the buyer can't finance it at their required return: pass, or convert the gap to an earnout. When the seller's ask exceeds the disciplined multiple, the earnout is the bridge — the mechanics are in earnout structures and the shadow P&L.

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