A buyer-first guide to business valuation — how the multiple actually works, what businesses really sell for, what moves the number, and how to turn an estimate into an offer. Start with a free estimate, then read the playbook.
Owner’s take-home: net profit + owner salary + add-backs.
Added on top of the earnings-based value.
A market-comps estimate range — not an appraisal or financial advice.
You value a business by multiplying its normalized earnings by a market multiple — SDE × a multiple for small businesses, EBITDA × a multiple for larger ones — and then sanity-checking that number against what comparable businesses actually sold for.
That’s the whole mechanic. The two hard parts are getting the earnings right (sellers inflate them) and picking a multiple you can defend (the internet inflates that too). As a buyer, business valuation isn’t about admiring the asking price — it’s about rebuilding the number from the ground up so your offer rests on figures you’ve verified, not figures you were handed.
Before you pick a multiple you have to pick what you’re multiplying. Small businesses and larger businesses use two different earnings figures, and mixing them up is the most common valuation error.
The total cash benefit to one full-time owner-operator: net profit plus the owner’s salary, owner perks, interest, depreciation, amortization, and genuinely one-time expenses, all added back. SDE is the standard for owner-operated small businesses — roughly under ~$2M of enterprise value.
Earnings before interest, taxes, depreciation, and amortization — but, unlike SDE, it does not add back an owner’s salary, because it assumes a hired manager runs the business. EBITDA is the standard for larger, manager-run deals — roughly above ~$2M of value.
Why it matters for an offer: an SDE multiple and an EBITDA multiple are not comparable. SDE earnings are larger (the owner’s pay is still in them), so SDE multiples are correspondingly smaller. If a seller quotes you a flattering “EBITDA multiple” on a business actually priced on SDE — or vice versa — the headline number is meaningless until you put both deals on the same basis.
The popular “businesses sell for 3–5x” rule is mostly a myth at the small end. The all-industry reality is closer to 2.6x SDE — and the multiple climbs steadily with size.
IBBA Q3-2025 multiple ladder. Larger businesses sell for more per dollar of earnings — better systems, less owner-dependence, and more buyers competing for them.
For context on the typical deal: the median small business that actually sold went for roughly $350,000 at about 2.61× SDE (marketplace, self-reported data — not a census). So when a seller anchors to “3 to 5 times,” that’s the top of the range or a larger business than theirs. Knowing where a deal sits on this ladder is the difference between overpaying and a defensible offer.
Two businesses with identical earnings can be worth very different amounts. The multiple is really a quality score, and a handful of factors do most of the moving. As a buyer, these are your negotiating levers.
Revenue under contract, subscription, or reliable repeat earns a premium multiple — it’s predictable and transfers cleanly to a new owner. One-off, project-based revenue earns less.
Steadily growing sales and clean, verifiable financials both lift the multiple. Flat or declining sales, or books you can’t reconcile, do the opposite — and slow every deal down.
The single biggest discount. A customer worth more than 20% of revenue can cut value 20–35% — and at the extreme it’s a deal-killer, because losing that account after close could sink the business.
If the business can’t run without the owner — key relationships, the only salesperson, all the know-how in one head — the multiple drops, because you’re buying a job, not an asset that transfers.
A valuation gives you a range. An offer comes from the numbers you can verify. Two realities of the small-business market shape where your offer lands — and both favor a disciplined buyer.
Asking price isn’t the price. Over the long run, small businesses sell for roughly 85–86% of asking. The list price is the seller’s opening anchor, not a verdict — so treat it as the start of a negotiation, not the answer to “what’s it worth.”
Recast the add-backs yourself. The seller’s SDE is built on add-backs — and buyers commonly disallow 20–40% of them as personal, non-recurring, or not truly the owner’s. Every dollar of add-back you reject lowers the earnings the multiple applies to, which lowers the price. Re-run the earnings on figures you can verify, apply a multiple defensible for the size and quality, and the gap between that and the asking price is your negotiation.
None of this is due diligence or financial advice — it’s the back-of-the-envelope a buyer does to decide whether a deal is even worth pursuing. For the authoritative number, bring in a credentialed appraiser. More below.
Straight talk on what this platform does and doesn’t do, so the estimate above sits in the right context.
DealStratum sources deals — the Waterfall pulls on-market businesses for sale into one de-duped feed filtered to your buy box, and Owner Sourcing finds off-market owners you can reach directly. Finding the right business is the problem we solve.
We don’t broker, lend, run due diligence, or give financial or legal advice — and the estimator above is a market-comps range, not an appraisal. It’s a fast first read to decide whether a deal is worth your time, not a number to take to a bank.
When you need an authoritative valuation — financing, a buyout, tax, or a disputed price — hire a credentialed appraiser (ASA, ABV, or CVA). The estimate here is for direction; an accredited appraisal is for decisions that turn on the exact figure.
Running these numbers on your own business? Start with the seller valuation tool — same estimator, framed for owners thinking about a sale — and see what buyers will be recasting before you ever list.
You can only value what you’ve found — and the businesses worth valuing don’t sit on the market long. Here’s where buyers go next.
On-market businesses for sale, pulled into one live, de-duped feed filtered to your buy box — so you have deals to value in the first place.
The companion guide: every channel deals come from, how to build a buy box, and how to be first to the good ones before they’re gone.
The full buyer playbook — from defining your thesis through closing — with valuation as one chapter in the larger acquisition process.
Reach owners who never list — the off-market deals where there’s no auction, no asking-price anchor, and often a better price to value against.
Most small businesses are valued on a multiple of earnings. For deals under roughly $2M of value the earnings figure is SDE (seller’s discretionary earnings — the owner’s total cash benefit); larger deals use EBITDA. You estimate normalized earnings, pick a multiple based on industry and quality, multiply the two, and then sanity-check against what comparable businesses actually sold for. The all-industry reality for small businesses is about 2.6× SDE, not the 3–5x people often assume.
The median small business that sold went for about $350,000 at roughly 2.61× SDE (marketplace, self-reported data — not a census). Multiples climb with size: per the IBBA Q3-2025 ladder, roughly 2.0× SDE under $500K, ~2.8× for $500K–$1M, and ~3.3× for $1M–$2M of value; above that, larger deals move to EBITDA at roughly 4.0× ($2–5M) and ~5.3× ($5–50M). The popular “3–5x” rule overstates the typical small-business multiple.
SDE (seller’s discretionary earnings) is the total cash benefit to one full-time owner-operator: net profit plus the owner’s salary, owner perks, interest, depreciation, amortization, and one-time expenses added back. EBITDA does not add back an owner’s salary, because it assumes a hired manager. Small businesses (under ~$2M of value) are priced on SDE; larger businesses are priced on EBITDA. Comparing an SDE multiple to an EBITDA multiple is an apples-to-oranges mistake.
Customer concentration is the biggest one — a single customer worth more than 20% of revenue can cut value 20–35% and is sometimes a deal-killer. Heavy owner-dependence, declining or flat sales, messy or unverifiable books, and revenue that is one-off rather than recurring all pull the multiple down. Recurring, contracted revenue does the opposite and earns a premium.
A tool or a comps-based estimate is enough to decide whether a deal is worth pursuing and to frame an offer. For the authoritative number — financing, a partner buyout, tax or legal matters, or a disputed price — get a credentialed business appraiser (ASA, ABV, or CVA). DealStratum’s estimator is a market-comps range, not an appraisal or financial advice.
A valuation sets the range; the offer comes from the verified numbers. Small businesses sell for about 85–86% of asking price over the long run, so the asking price is a starting point, not the price. Re-run the earnings yourself — buyers commonly disallow 20–40% of a seller’s add-backs — then apply a defensible multiple to the earnings you can actually verify. The gap between asking and a clean recast is where most negotiation happens.
A valuation only matters once you’ve found the right business. See how DealStratum brings every channel of on-market and off-market deals into one buy-box-filtered feed.