"What is my business worth?" is the first question almost every owner asks — and the honest answer is: it depends on your earnings, how dependable they are, and what a buyer would have to replace to run the business without you. This guide walks through how buyers actually value a small business, so you can estimate your own range before you ever talk to anyone.
None of this is a substitute for a real valuation, but it will make you a far more informed owner — and harder to lowball.
Key takeaways
- Buyers value small businesses on SDE (owner earnings), larger ones on EBITDA.
- Most small businesses sell for roughly 2x–4x SDE, heavily dependent on industry and durability.
- Owner-dependence, recurring revenue, and customer concentration move the multiple the most.
- A quick self-estimate: SDE × 2.5 to SDE × 3.5.
Start with the right earnings number
Valuation starts with profit, but not the profit on your tax return. Buyers of small businesses value on Seller's Discretionary Earnings (SDE) — your net profit plus the owner's salary, benefits, one-time expenses, and non-cash items like depreciation added back. SDE reflects the total financial benefit the business provides to a single owner-operator.
Larger businesses (typically over ~$1–2M in earnings) are valued on EBITDA — earnings before interest, taxes, depreciation, and amortization — which assumes a management team is in place rather than an owner-operator.
- SDE = net profit + owner's pay + owner's benefits + one-time costs + depreciation/amortization + interest
- EBITDA is used for larger, manager-run businesses
- Clean, verifiable books raise both the number and buyer confidence
Apply a realistic multiple
Value is usually expressed as a multiple of SDE or EBITDA. Most small businesses sell somewhere between 2x and 4x SDE, but the range is wide and industry-dependent: recurring-revenue businesses (HVAC service contracts, pest control routes, SaaS) command higher multiples than project-based or owner-dependent ones.
The multiple is where most of the negotiation lives. Two businesses with identical earnings can be worth very different amounts based on how transferable and durable those earnings are.
The three valuation approaches
Professionals triangulate value using three lenses, then reconcile them:
- Income approach — value based on cash flow and risk (the SDE/EBITDA multiple method).
- Market approach — what comparable businesses actually sold for.
- Asset approach — the net value of equipment, inventory, and other assets, most relevant for asset-heavy or underperforming businesses.
What moves your number up or down
Once earnings are set, these factors decide whether you land at the top or bottom of the range — and they're the things worth improving before a sale:
- Owner-dependence — the less the business needs you personally, the more it's worth.
- Recurring revenue and customer retention — predictable income earns a premium.
- Customer concentration — if one client is 40% of revenue, buyers discount heavily.
- Growth trend — rising revenue and margins lift the multiple.
- Clean financials and documented systems — reduce perceived risk.
Estimate your range
To ballpark it yourself: calculate your SDE, then multiply by a conservative 2.5x and an optimistic 3.5x to get a range. A business with $300K SDE, for example, lands roughly between $750K and $1.05M before adjusting for the value drivers above.
That's a starting point, not an answer. A real valuation weighs your specific industry, trend, and risk profile — which is exactly what our free valuation gives you.
Get a free, confidential valuation
Skip the guesswork. We'll give you a defensible number built around your actual earnings and industry — free, private, and no obligation.
Frequently asked questions
How much is my business worth?
Most small businesses are worth roughly 2x–4x their Seller's Discretionary Earnings (SDE), but the exact multiple depends on your industry, growth, recurring revenue, and how dependent the business is on you. A free valuation gives you a defensible number tailored to your business.
What's the difference between SDE and EBITDA?
SDE adds the owner's salary and benefits back into profit and is used for owner-operated small businesses. EBITDA assumes a paid management team and is used for larger businesses. Using the wrong one can misprice a business by a lot.
Do I need a formal appraisal to sell?
Not always. A defensible valuation is essential, but for many owner-operated businesses a direct buyer's valuation is enough to agree on fair terms without paying for a formal third-party appraisal.