SOP #42 — "The multiple sets the price" is wrong

SOP #42 — "The multiple sets the price" is wrong

Myth: 3x annual profit is the price. Correction: the multiple is an output, not an input — it only means something after you normalize the earnings it multiplies. Run the inputs first:

1. Confirm the period: is it trailing 12 months or last-30-days-annualized? Annualized recent months = fail, re-base to TTM.
2. Add back nothing the seller can't document — owner salary addbacks need a payroll record, not a claim.
3. Strip one-time revenue (a viral spike, an expired sponsorship) from the earnings base.
4. Subtract real costs the seller "forgot": content, hosting, links, VA labor at market rate.
5. Recompute true monthly net, then apply your multiple.

A "3x" on inflated SDE is really 5x on reality. Price the normalized number.

Save this — run it every deal.