Most privately held businesses sell for a multiple of their profit. For smaller companies, that multiple is applied to seller's discretionary earnings (SDE); for larger ones, it is applied to EBITDA. As a general rule, small businesses often sell for roughly 2 to 4 times SDE, while lower-middle-market companies frequently trade between 4 and 8 times EBITDA. Where your company lands inside that range depends on its size, industry, growth rate, margins, customer concentration, and how clean and defensible its earnings are.
That is the short answer to "how much is my business worth." The longer answer is that a valuation is really two numbers multiplied together: your normalized earnings and the multiple the market assigns to a business like yours. Get either one wrong and the estimate can be off by millions. Understanding both, plus the handful of factors that move the multiple up or down, is how you turn a rough guess into a range you can actually defend to a buyer.
The core business valuation methods (and when each applies)
There is no single formula for what a company is worth. Professional valuation relies on a handful of standard approaches, and the right one depends mostly on your company's size and how it makes money.
SDE multiple (smaller businesses)
Seller's discretionary earnings (SDE) is the total financial benefit a single owner-operator receives from the business. You calculate it by starting with net profit and adding back the owner's salary, owner perks, interest, taxes, depreciation, amortization, and one-time expenses. SDE is the standard basis for owner-operated businesses, typically those under about $1 million in earnings, such as many home-service firms, restaurants, retail shops, and small trades. A buyer of this size is usually buying themselves a job plus a return, so they value the whole earnings stream one person controls.
EBITDA multiple (larger and lower-middle-market businesses)
EBITDA (earnings before interest, taxes, depreciation, and amortization) is the standard basis once a business is large enough to run with a management team rather than a single owner. It differs from SDE mainly because it does not add back a market-rate salary for the owner's role; the assumption is that a buyer must pay someone to do that job. For companies with roughly $1 million to $15 million of EBITDA, the range usually called the lower middle market, the EBITDA multiple is the dominant method, and buyers focus heavily on adjusted EBITDA after legitimate add-backs.
Revenue multiple (rare and situation-specific)
A revenue multiple values a business as a factor of its top-line sales rather than its profit. It is uncommon for traditional small businesses and is mostly used for high-growth software and SaaS companies that are deliberately reinvesting instead of showing profit, or as a quick sanity check within an industry. For a profitable operating business, a revenue multiple usually understates or overstates value because it ignores margins entirely.
Asset-based valuation
An asset-based approach values the business as the net value of its tangible and intangible assets minus liabilities. It matters most for asset-heavy or capital-intensive businesses, holding companies, or situations where the company earns less than its assets would justify; in that case it may be worth more sold for parts than as a going concern. For a healthy, profitable company, the earnings-based methods almost always produce a higher number.
Discounted cash flow (DCF)
A discounted cash flow analysis projects the company's future cash flows and discounts them back to present value using a rate that reflects risk. DCF is theoretically the most rigorous method, but it is highly sensitive to assumptions about growth and discount rate, so for private companies it is typically used alongside market multiples rather than on its own. In practice, most private-company sales are priced off comparable transactions and multiples, with DCF as a cross-check.
Typical valuation multiples by industry
Multiples vary widely by industry because buyers pay for different things: recurring revenue, defensible margins, low capital intensity, and durable demand all command a premium. The table below shows general educational ranges for common industries. Smaller, owner-operated businesses are shown as a multiple of SDE; lower-middle-market businesses are shown as a multiple of EBITDA. Treat these as orientation, not a quote.
| Industry | Smaller / owner-operated (x SDE) | Lower middle market (x EBITDA) |
|---|---|---|
| Home services (landscaping, cleaning, pest) | 2.0x - 3.5x | 5x - 8x |
| HVAC, plumbing, electrical | 2.5x - 4.5x | 5x - 9x |
| Manufacturing and machining | 3.0x - 4.5x | 4x - 7x |
| Wholesale and distribution | 2.5x - 4.0x | 4x - 6.5x |
| Healthcare services | 2.5x - 4.5x | 5x - 9x |
| Professional and B2B services | 2.0x - 4.0x | 4x - 7x |
| Software and SaaS | 3.0x - 5.0x SDE (or ~2x - 6x revenue) | 8x - 15x+ |
| Restaurants (independent to multi-unit) | 1.5x - 2.5x | 3x - 5x |
These ranges are general educational estimates, not a formal appraisal or a guarantee of value. Actual value depends on due diligence, deal structure, and market conditions at the time of sale, and an individual company can fall well outside its industry range in either direction.
From multiple to what you actually receive
Multiplying adjusted earnings by a multiple gives you enterprise value: the value of the business's operations, independent of how it is financed. That is not the same as the cash a seller takes home. Most private deals are structured on a cash-free, debt-free basis, which means:
- Any interest-bearing debt the business carries is subtracted, because the buyer either assumes or retires it.
- Excess cash on the balance sheet is typically added or swept to the seller at close.
- A normal level of net working capital (receivables and inventory net of payables) is expected to be delivered with the business, and shortfalls or surpluses are trued up.
- Deal structure (cash at close versus seller financing, earnouts, or rollover equity) changes both the headline number and its certainty.
The practical takeaway: the multiple sets the enterprise value, but debt, cash, working capital, and structure determine your net proceeds. A higher headline price with an aggressive earnout can be worth less than a lower all-cash offer.
What drives a higher multiple
Two businesses with identical profit can be worth very different amounts. The gap comes from risk: the more predictable and transferable the earnings, the higher the multiple a buyer will pay. The factors that move the multiple the most are:
- Size. Larger businesses earn higher multiples for the same industry, because bigger earnings streams are more stable and attract more sophisticated, better-capitalized buyers. Crossing from SDE-scale into true EBITDA-scale is often the single biggest re-rating event.
- Recurring revenue. Contracts, subscriptions, service agreements, and repeat customers are worth far more than one-off project work because they make future cash flow predictable.
- Buyers discount heavily when one customer is a large share of revenue; a broad, diversified customer base supports a premium.
- A business with a credible, sustained growth trend is valued on where it is going, not just where it is.
- Margins. Higher and stable gross and operating margins signal pricing power and efficiency, and drop more of each dollar to the bottom line.
- Management depth. If the business can run without the owner in every decision, it is far more transferable, and therefore more valuable, than one that depends entirely on the founder.
- Clean books and quality of earnings. Accrual-based financials, reconciled statements, and documented add-backs let a buyer trust the numbers. Messy or cash-based books create uncertainty, and uncertainty is priced as a discount.
Why adjusted EBITDA matters
The number a buyer multiplies is almost never the profit shown on your tax return. It is adjusted EBITDA (or adjusted SDE for smaller deals), meaning earnings normalized to reflect how the business would perform under a typical owner. Legitimate add-backs include one-time expenses, above-market owner compensation, personal expenses run through the business, non-recurring legal or repair costs, and clearly discretionary spending.
The multiple amplifies every one of these adjustments. If a business shows $800,000 of reported EBITDA but has $200,000 of defensible add-backs, its adjusted EBITDA is $1 million. At a 6x multiple, that $200,000 adjustment is worth $1.2 million of enterprise value. This is exactly why a formal quality of earnings analysis pays for itself: every add-back a buyer accepts (or rejects) moves the price by the full multiple. Aggressive or undocumented add-backs get stripped out in diligence, so the goal is not the biggest number but the most defensible one.
How to get a real number for your business
Free online valuation calculators are useful for a rough starting point, but they apply generic industry multiples to numbers you enter yourself, with no verification and no normalization of your earnings. They cannot see your customer concentration, your true margins, or which add-backs will survive diligence, so they should be treated as directional only.
A credible valuation does three things a calculator cannot: it normalizes your earnings into defensible adjusted EBITDA or SDE, it selects a multiple from genuinely comparable transactions rather than a broad industry average, and it accounts for the specific risk factors above. For owners preparing to sell, that usually means engaging a valuation professional, an M&A advisor, or a business broker, ideally with a quality-of-earnings review before you go to market.
As one option in this space, Bankerly.ai produces a comparable-transaction-backed valuation range alongside financial due-diligence deliverables (including a quality-of-earnings analysis) for lower-middle-market sell-side processes. Whatever route you choose, the objective is the same: replace a guess with a range you can defend across the negotiating table.
A note on the figures above: valuation is an educational estimate, not a formal appraisal or a guarantee of price. Any real number for your business depends on what buyers find in diligence, how the deal is structured, and where the market stands when you sell. Confirm it with your own qualified advisors before you make decisions.
Frequently asked questions
- What multiple do businesses sell for?
- It depends on size and industry. Smaller owner-operated businesses commonly sell for roughly 2 to 4 times seller's discretionary earnings (SDE), while lower-middle-market companies often trade between 4 and 8 times EBITDA. Higher-growth or software businesses can command more. These are general educational ranges, and any individual business can fall outside them.
- What is the difference between SDE and EBITDA?
- SDE (seller's discretionary earnings) is the total benefit to a single owner-operator and adds back the owner's full salary; it is used for smaller businesses. EBITDA (earnings before interest, taxes, depreciation, and amortization) does not add back a market-rate owner salary and is used for larger companies that run on a management team rather than one owner.
- How do I increase my business's value before selling?
- Focus on the factors that raise the multiple: build recurring revenue, diversify away from any single large customer, improve and stabilize margins, and develop a management team so the business runs without you. Clean up your financials to accrual-based statements and document your add-backs so a buyer's diligence confirms your adjusted earnings rather than discounting them.
- Is a revenue multiple or EBITDA multiple better?
- For most profitable operating businesses, an EBITDA (or SDE) multiple is more accurate because it reflects actual profitability, not just sales. Revenue multiples are mainly used for high-growth software companies that reinvest instead of showing profit, or as a quick sanity check. Valuing a profitable business on revenue alone ignores margins and usually distorts the number.
- How accurate are online business valuation calculators?
- They are useful for a rough, directional estimate but not a reliable final number. Calculators apply generic industry multiples to figures you enter yourself, with no verification, no earnings normalization, and no view of customer concentration or diligence risk. Use them as a starting point, then get a professional valuation or quality-of-earnings review before relying on the figure.
Considering a sale in the next few years? See what a prepared process looks like.
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