How to Value a Small Business

A small business is worth some multiple of what it really earns for its owner. Get the earnings right and the multiple honest, and you won’t overpay.

Start with SDE

Most Main Street businesses are valued on Seller’s Discretionary Earnings (SDE) — the total financial benefit a single owner-operator gets from the business. You build it from net profit, then add back the owner’s salary, perks, interest, taxes, depreciation, and one-time costs. SDE answers the buyer’s real question: how much will this business pay me to run it?

The multiples (illustrative)

• Main Street businesses typically sell for roughly 2–3.5× SDE (the broad range runs ~1.5–4×). In 2024 the average was around 2.6× with a median sale price near $350,000.
• Revenue rules of thumb land near 0.6–0.7× annual sales for many Main Street firms — useful only as a sanity check.
• Larger, professionally managed firms shift to EBITDA multiples — often 4–7× or more — usually once EBITDA passes roughly $2M and a management team has replaced the owner.

These are general ranges for orientation, not a quote; actual value varies widely by industry, size, and quality.

What moves the multiple

Two businesses with identical earnings can be worth very different amounts. The multiple rises with growth, recurring or contracted revenue, a diversified customer base, clean and verifiable books, and — most of all — independence from the owner. It falls with customer concentration, messy financials, declining sales, and a business that walks out the door when the seller does. Many of those same factors are exactly what you stress-test in diligence.