Business Valuation Calculator — What Is My Business Worth?
Estimate your business value using the SDE (Seller's Discretionary Earnings) multiple method — the industry standard for Main Street and lower middle-market businesses.
SDE (Seller's Discretionary Earnings)
$350,000
Conservative
$588K
Base Case
$938K
Optimistic
$1.29M
Rev Multiple
$1.20M
Valuation Range
Business Quality Score
Analysis & insights
SDE (Seller's Discretionary Earnings) of $350,000 (23.3% of revenue) drives your business's valuation. Conservative case: $588,000. Base case: $938,000. Optimistic: $1,288,000. Revenue-multiple cross-check (for Professional Services): $1,200,000. Real-world sale prices depend heavily on customer concentration, recurring revenue, growth trajectory, owner dependency, and the buyer pool. These estimates are a starting range — get a formal valuation before listing.
Lower middle market
Bigger pool of professional buyers (PE, search funds, family offices). Multiples typically higher than Main Street.
Risk & benchmark gauge
Current band
Sub-Main Street
Base valuation: $938,000
Industry benchmarks
- SDE$350,000
- SDE margin %23.3%
- Conservative valuation$588,000
- Base-case valuation$938,000
- Optimistic valuation$1,288,000
- Revenue multiple check$1,200,000
Key insights
SDE > earnings > EBITDA
SDE adds back owner salary + benefits + discretionary expenses (the buyer can keep or eliminate). Used for owner-operated businesses. EBITDA is for businesses sold to non-operators (PE, strategic buyers).
Customer concentration kills multiples
One customer = 40%+ of revenue typically cuts multiple by 30-50%. Diversify revenue 12-24 months before listing.
Recurring revenue gets a premium
SaaS, subscriptions, contract-based revenue earn higher multiples than transactional revenue. Even partial-shift to recurring (50%+) materially lifts valuation.
Owner-dependency limits buyer pool
If the business relies on YOU specifically (relationships, technical skill, personality), most buyers walk. Building systems + a #2 leader before listing expands the buyer pool dramatically.
Recommended actions(5)
Get a formal valuation before listing
High priorityBusiness valuators ($2-10K) or business brokers (free, but conflicted) can give a precise number. The range above is a starting point only.
Clean up the books 12-24 months pre-sale
High priorityBuyers want 24+ months of audited or reviewed financials. Discretionary expenses (personal-use car, family payroll, sponsorships) need clear add-back justification.
Impact: Clean books = higher multiple. Murky books = buyer discount of 15-30%.
Diversify revenue + build recurring
Medium priorityBoth customer concentration AND revenue mix shift the multiple. Even adding subscription tiers to a transactional business helps.
Related Calculators
This tool is for educational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional for advice specific to your situation.
What is Small Business Valuation?
Small businesses are usually valued on a multiple of seller's discretionary earnings — SDE — which is the total financial benefit the business delivers to one full-time owner-operator. That is a different measure from profit, and understanding why is most of understanding small-business valuation.
Reported net profit is close to useless for this purpose, because owner-managed businesses are run to minimise tax rather than to maximise reported earnings. The owner's salary, their vehicle, their phone, a one-off legal cost — all reduce profit while representing money a new owner would either keep or not spend.
SDE adds those back to show what the business actually generates. The multiple then prices how risky and transferable that earnings stream is, which is why two businesses with identical SDE can be worth very different amounts.
The formula — how to calculate Small Business Valuation
- SDE
- = total benefit to a single owner-operator, before their own compensation
- Add-backs
- = owner salary, personal expenses run through the business, genuinely non-recurring costs
- Multiple
- = typically 1.5–4× SDE for small businesses, varying by sector, size and owner dependence
SDE is used below roughly $1m of earnings, where a single owner-operator is assumed. Above that, buyers switch to EBITDA multiples, which do not add back an owner salary because the business is expected to pay professional management.
Step-by-step example
- 01A service business: net profit $120,000, owner salary $85,000, personal vehicle and phone through the business $12,000, a one-off legal settlement $18,000.
- 02SDE: $120,000 + $85,000 + $12,000 + $18,000 = $235,000.
- 03At a base professional-services multiple of 2.5×, indicative value is $587,500.
- 04Now adjust for quality. Suppose the largest customer is 40% of revenue — high concentration, a downward adjustment. Growth is flat rather than rising, another small deduction. Recurring revenue is only 20% of the total, deducting again.
- 05Those adjustments might pull the effective multiple to roughly 2.0×, giving $470,000.
- 06Reverse them — diversified customers, 15% growth, 70% recurring revenue — and the multiple might reach 3.2×, giving $752,000.
- 07The same $235,000 of earnings supports a $282,000 range in price. The multiple, not the earnings, is where valuation is won or lost.
What legitimately adds back, and what does not
Every add-back raises the price by the multiple, so a $10,000 add-back at 2.5× asks the buyer for $25,000 more. Buyers scrutinise them accordingly, and an aggressive list damages credibility across the whole negotiation.
- Always legitimate —
- the owner's salary and payroll taxes, since the buyer decides their own compensation. Depreciation and amortisation as non-cash charges. Interest, since capital structure is the buyer's choice.
- Usually accepted —
- genuinely personal costs run through the business — a family phone plan, a personal vehicle — and one-off events that will not recur, such as a legal settlement or a relocation.
- Contested —
- above-market family wages, "one-off" costs that appear in several consecutive years, and discretionary marketing the buyer would probably still need to spend.
- Not add-backs —
- genuine operating costs however unwelcome, deferred maintenance, and any expense the buyer will have to keep paying. Adding these back is the fastest way to lose a buyer's trust in every other figure.
Owner dependence is the biggest single discount
If the business depends on the owner's personal relationships, technical skill or reputation, a buyer is purchasing a job rather than an asset — and prices it far lower. Documented processes, a management layer, and customers who buy from the company rather than from you are what move the multiple most. This is the one lever a seller can genuinely work on in the year before a sale.
What moves the multiple
Quality factors and their direction
| Factor | Raises the multiple | Lowers it |
|---|---|---|
| Customer concentration | No customer above ~10% | One customer above 25% |
| Revenue type | Recurring, contracted | One-off, project-based |
| Growth | Consistent and documented | Flat or declining |
| Owner dependence | Management team in place | Owner is the business |
| Records | Reviewed or audited accounts | Cash-basis, informal books |
| Size | Larger earnings base | Very small, single-person |
| Sector | Software, healthcare | Restaurants, retail |
Typical small-business SDE multiples run about 1.5–2.5× for basic service businesses, 2–3.5× for established firms with some recurring revenue, and 3–5× for software or businesses with strong contracted income. These are transaction conventions, not standards.
Valuation is not the price, and the price is not the cheque
Three different numbers get conflated, and the gap between them is where sellers are disappointed.
A valuation is an estimate of what a business might fetch. The price is what a specific buyer agrees, which depends on their financing, their strategic interest and how many other buyers exist. A single interested party is a weak market.
Enterprise value assumes the business is transferred free of debt and cash. Equity value — what the seller receives — is enterprise value minus debt plus cash, so a business valued at $587,500 carrying $150,000 of debt delivers closer to $437,500.
Then structure. Small business sales commonly include seller financing, an earn-out tied to future performance, and an escrow holdback against warranty claims. A headline $587,500 might be $350,000 at completion with the rest paid over several years and contingent on the business continuing to perform.
This is why comparing headline prices between deals is nearly meaningless. Cash at close, and the credibility of what follows it, is the number worth negotiating.
Key considerations
- SDE applies below roughly $1m of earnings; above that buyers use EBITDA.
- Every add-back must be defensible — each one is multiplied at sale.
- Owner dependence is the largest discount and the most improvable factor.
- Clean, reviewed financial records materially raise the achievable multiple.
- Reduce customer concentration well before a sale; it cannot be fixed quickly.
- Equity value is enterprise value minus debt plus cash.
- Judge offers on cash at close, not the headline figure.
- Get a professional valuation for anything consequential — this is an estimate.
Common mistakes to avoid
- Valuing on reported net profit, which owner-managed businesses deliberately minimise.
- Padding add-backs with costs a buyer will still have to pay.
- Claiming the same "one-off" expense in several consecutive years.
- Ignoring owner dependence, the single largest driver of the discount.
- Confusing enterprise value with the proceeds actually received.
- Comparing headline prices without knowing the deal structure.
- Applying a software multiple to an owner-operated service business.
Frequently asked questions
Sources & references
Written and fact-checked by the CalcProLabs Editorial Team. Read our calculation methodology and editorial policy.
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