What Is My Business Worth? How to Find Out

This is the question I hear more than any other. Business owners who have spent 15 or 20 years building something want a straight answer, and they usually get vague platitudes about "it depends." So let me give you the short answer first, then walk you through the details.

Most small businesses (under $5M in revenue) sell for 2 to 5 times their Seller's Discretionary Earnings (SDE).If your business generates $300,000 in SDE, you're probably looking at a valuation range of $600,000 to $1,500,000. Where you land within that range depends on your industry, your size, your growth trajectory, and a handful of other factors I'll cover below.

That's the 30-second answer. Now let me explain what it actually means and how to figure out where your business falls.

First, You Need to Know Your SDE

SDE, or Seller's Discretionary Earnings, is the single most important number in small business valuation. It represents the total financial benefit the business provides to one owner-operator. If you don't know yours, nothing else matters.

Here's how to calculate it. Start with your net income from your tax return or P&L, then add back everything that's either personal or non-recurring:

• Owner's salary and payroll taxes — whatever you pay yourself, including bonuses
• Owner's benefits — health insurance, retirement contributions, car payment, phone
• Depreciation and amortization — non-cash charges that reduce your taxable income
• Interest expense — the buyer will have their own debt structure
• One-time expenses — that lawsuit settlement, the roof repair, the COVID PPP loan
• Personal expenses run through the business — meals, travel, family members on payroll who don't actually work there

A Real Example

Let's say you own a commercial cleaning company. Your tax return shows:

• Net income: $85,000
• Owner salary: $95,000
• Owner health insurance: $18,000
• Owner auto lease: $9,600
• Depreciation: $12,000
• One-time equipment purchase expensed: $15,000
• Wife on payroll (doesn't work there): $30,000

Your SDE is $264,600. That's the real earning power of the business for one owner-operator. Commercial cleaning companies typically sell for 2.0-3.5x SDE, so your valuation range would be roughly $530,000 to $925,000.

For a deeper dive on SDE versus EBITDA and when to use each, read SDE vs EBITDA: Which One Values Your Business?

The 5 Factors That Determine Your Multiple

Knowing that small businesses sell for 2-5x SDE is a start, but the range is enormous. A 2x multiple on $300K SDE is $600K. A 5x multiple is $1.5M. Here's what determines where you fall.

1. Industry

This is the single biggest factor. A SaaS company with $300K SDE will trade at a completely different multiple than a restaurant with $300K SDE. The market has established ranges for every industry, and they reflect differences in growth rates, capital requirements, transferability, and risk. Our data across 25,000+ transactions shows multiples ranging from 1.5x to over 8x SDE depending on industry.

2. Size (Revenue and Earnings)

Bigger businesses command higher multiples. A plumbing company doing $500K in revenue and $150K in SDE might trade at 2.0-2.5x. The same business model at $5M in revenue and $1M in SDE could trade at 3.5-4.5x. This isn't arbitrary — larger businesses have more customers, more employees, more infrastructure, and are less dependent on the owner. They're lower risk for buyers, and lower risk means a higher multiple.

3. Owner Dependency

If you are the business — if every client relationship runs through you, if you're the only one who can do the technical work, if customers would leave when you leave — your multiple is getting penalized. Hard. Buyers are purchasing future cash flows, and if those cash flows walk out the door with you, the business is worth less. The businesses that command the highest multiples are the ones where the owner could take a three-month vacation and nothing would change.

4. Growth Trajectory

A business growing at 15% per year is worth materially more than one that's been flat for five years. Buyers are buying the future, and growth means the earnings they're paying for today will be higher tomorrow. Conversely, declining revenue is a red flag that scares off most buyers and compresses your multiple significantly. I've seen the same industry, same SDE, and a 40% difference in valuation purely because one business was growing and the other wasn't.

5. Revenue Quality

Not all revenue is created equal. Recurring revenue — contracts, subscriptions, maintenance agreements — is worth more than project-based or one-time revenue. A managed IT services company with 80% recurring revenue from monthly contracts will trade at a meaningfully higher multiple than a break-fix IT shop with the same SDE. Buyers pay a premium for predictability.

When SDE Multiples Don't Apply

SDE-based valuation works for most owner-operated small businesses, but there are important exceptions. If your business generates more than roughly $1M in EBITDA, buyers will shift to EBITDA-based valuation — and the multiples are different. EBITDA multiples for lower middle market businesses typically range from 4x to 8x, with some industries commanding higher.

Some industries use entirely different metrics. Dental practices trade on a percentage of collections. Insurance agencies trade on a multiple of book value or commission revenue. SaaS companies often trade on revenue multiples. The methodology matters as much as the number. For a full comparison of valuation approaches, see our guide on business valuation methods.

What About Assets?

In most small business transactions, you're selling the operating business, not the real estate or other non-operating assets. Real estate is typically leased back or sold separately. Equipment value is usually captured within the multiple — a buyer expects the business comes with the tools needed to operate it.

The exception is businesses where the assets ARE the business: think heavy equipment companies, trucking fleets, or manufacturing operations where the equipment replacement value exceeds the earnings-based value. In those cases, an asset-based approach may set the floor.

The Most Common Mistakes I See

After advising on hundreds of transactions, I see the same mistakes repeatedly:

Using revenue as a proxy for value. Revenue tells you almost nothing about what a business is worth. A $2M revenue business with 40% margins is worth far more than a $3M revenue business with 10% margins. Buyers buy earnings, not revenue.

Comparing your business to public companies.When Amazon trades at 50x earnings, it has nothing to do with what your $1M revenue business is worth. Public companies have liquidity, diversification, and scale that small businesses don't. The multiples are not comparable.

Anchoring to what a friend got."My buddy sold his HVAC company for 5x" is not a data point. You don't know his SDE, his growth rate, his customer concentration, or the deal structure. Every transaction is different.

Ignoring deal structure. A $1M offer with 80% seller financing at below-market rates is not worth $1M. The present value of that deal is significantly less than a $900K all-cash offer. How you get paid matters as much as the headline number.

How to Get a More Precise Answer

The ranges I've given you here are directional. They're based on real transaction data, but they're broad because I don't know your specific situation. To narrow the range, you need an analysis that accounts for your industry, your size, your growth profile, your revenue quality, and your specific financial metrics.

That's exactly what our valuation tool does — it draws on 25,000+ real M&A transactions and applies the right methodology for your industry to give you a data-driven valuation range. It takes about two minutes and it's the best starting point before you engage a broker or advisor.

If you're seriously considering a sale, a formal business appraisal or quality of earnings analysis from a qualified advisor is the next step. But knowing your approximate range before you start those conversations gives you leverage and prevents you from being surprised.