How to Value a Small Business

There is no single correct price for a small business. But buyers and brokers use a few standard methods, and you can use them to get a sensible starting range.

Step 1: work out your owner earnings (SDE)

Most small businesses are priced on seller's discretionary earnings, or SDE. It is the total a single working owner gets from the business in a year:

SDE = profit before tax + owner's pay + interest + depreciation + one-off and personal costs

Example: profit of $90,000, owner's pay of $70,000, interest of $5,000, depreciation of $10,000 and $5,000 of one-off costs. SDE is $180,000.

Step 2: apply a multiple

Brokers report that many small businesses sell for roughly 2 to 3 times SDE. BizBuySell's data for 2025 showed an average of about 2.6 times cash flow, and an average of about 0.7 times sales.

At 2 to 3 times, the example business is worth roughly $360,000 to $540,000, with $450,000 in the middle. Try your own numbers in the business valuation calculator.

Step 3: check it two other ways

Sales multiple. A rough check. If your sales-based value is far from your earnings-based value, look at your margin. Buyers pay for profit.
Net assets. What the business owns, less what it owes. A business with few earnings may be priced on its assets.

What pushes the multiple up

Steady or growing sales and profit.
Lots of repeat customers and no single customer you depend on.
Good, clean financial records.
A business that runs without you.
A strong, easy-to-explain reason for selling.

What pushes it down

Profit that falls, or swings a lot.
A business that depends on you personally.
A few customers making most of the sales.
Messy books, or cash you cannot show on paper.
A short lease or loose contracts.

Bigger businesses

As businesses get larger, buyers switch from SDE to EBITDA, which assumes you hire a manager. See SDE vs EBITDA. Multiples for larger firms vary widely by industry.

Before you sell

Get 3 years of clean financial statements.
Write down add-backs and be ready to prove them.
Ask a business broker, accountant or valuation expert for a proper valuation. IRS guidance on valuing closely held businesses (Revenue Ruling 59-60) lists many factors to weigh, such as earning capacity, financial condition and outlook, and says there is no prescribed formula.

This is general information, not financial or tax advice.

Try it yourself Business valuation calculator Work out your owner earnings and a value range. Open the calculator →

Sources

This article is for education and is not financial, tax or legal advice. Figures are checked against the sources above and may change. Read the full disclaimer.