How to Value Your Business
Valuation is part science, part negotiation. Here's how buyers calculate what your business is worth — and how to maximize it.
SDE — Seller's Discretionary Earnings
SDE is the most common valuation method for small businesses (under $2M in value). It measures the total economic benefit a single full-time owner-operator derives from the business each year.
The buyer then applies a multiple (typically 1.5–3×) based on industry, business stability, growth trends, and owner dependency.
EBITDA Multiples
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is used for larger businesses with professional management — typically $2M+ in annual revenue or $500K+ EBITDA. Unlike SDE, it excludes owner compensation so it's more comparable across companies.
Revenue Multiples for Online Businesses
Online businesses — e-commerce, content sites, SaaS — are often valued on trailing 12-month revenue or ARR because profit margins vary widely.
Asset-Based Valuation
Used when the business has limited earnings but substantial tangible assets — equipment, real estate, inventory. Valuation equals the fair market value of all assets minus liabilities. Common in manufacturing, construction, or businesses for liquidation. An independent equipment appraisal is essential.
Rule-of-Thumb Multiples by Business Type
| Business Type | Method | Typical Multiple |
|---|---|---|
| Restaurant / Food Service | SDE | 1.5–2.5× |
| Retail Store | SDE | 1.5–3× |
| Service Business (non-professional) | SDE | 2–3× |
| Professional Practice (medical/dental) | Revenue or EBITDA | 0.5–1× revenue / 2–4× EBITDA |
| Law Firm | Revenue | 0.3–0.7× revenue |
| Accounting / CPA Practice | Revenue | 0.8–1.3× revenue |
| Manufacturing | EBITDA | 3–5× EBITDA |
| E-commerce / DTC Online | SDE or Revenue | 2–4× SDE / 1–3× revenue |
| Amazon FBA | SDE | 2–3× SDE |
| SaaS (Micro < $1M ARR) | ARR | 3–6× ARR |
| SaaS (Growth $1M–$10M ARR) | ARR | 6–12× ARR |
| Franchise Unit | SDE | 1.5–3× SDE |
| Distribution Business | EBITDA | 3–5× EBITDA |
| Landscaping / Lawn Care | SDE | 2–3× SDE |
| Trucking / Logistics | EBITDA | 3–4× EBITDA |
Simple SDE Valuation Calculator
This is a rough estimate. Actual value depends on business stability, growth, owner dependency, customer concentration, and market conditions. Consider a professional valuation for businesses over $500K.
Professional Valuation Tools
For larger businesses or when you need a defensible valuation for SBA financing, consider a professional valuation service:
- BizEquity — Automated online valuation widely used by banks and advisors.
- ValuAdder — Software and calculators for DIY business valuation.
- Certified Business Appraiser (CBA) — Required by some SBA lenders for loans over $250K.