How to value a small business

There's no single 'correct' value for a business — there are methods, and a range. The goal isn't one magic number; it's a defensible range you can stand behind in a negotiation.

Method 1: a multiple of earnings (SDE)

The most common approach for small businesses is a multiple of Seller's Discretionary Earnings — the total yearly benefit to a single owner-operator, roughly net profit plus the owner's pay and one-off add-backs.

You multiply that SDE by a number that reflects how attractive the business is. Stronger, larger, faster-growing, less owner-dependent businesses earn higher multiples; risky or shrinking ones earn less.

Method 2: a multiple of revenue

Some businesses — especially those with thin or inconsistent profit — are valued on a multiple of revenue instead. This is common where recurring revenue or growth matters more than current earnings.

Revenue multiples vary hugely by industry, so use it as a cross-check on the earnings method rather than as your only number.

Method 3: asset-based

For asset-heavy businesses, you can value the tangible assets — equipment, inventory, property — minus liabilities. This sets a useful floor, since a buyer wouldn't usually pay less than the net assets are worth.

It tends to undervalue businesses whose real worth is in their brand, customers, or cash flow, so it's rarely the whole story.

From value to what the owner actually gets

A valuation usually describes the business itself. To find what an owner walks away with, you adjust for the balance sheet: add cash the business holds and subtract any debt that has to be repaid.

The free valuation calculator below runs the earnings-multiple method with a range; the full model layers in the revenue cross-check and the cash-and-debt adjustment.

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