How to value a small business to sell
The method buyers and brokers use, in six steps, with a worked example and a free calculator.
Short answer: work out your seller's discretionary earnings (profit plus what you pay yourself and personal or one-time costs), then multiply by what businesses like yours sold for. Owner-run service businesses sold for 1.75 to 3.13 times those earnings.
Six steps
- Gather three years of numbers. Profit and loss statements and tax returns for the last three years, plus this year so far. Buyers and lenders look at the trend, not one good year.
- Work out your owner earnings (SDE). Start with net profit. Add back what you pay yourself, interest, depreciation and amortization, and personal or one-time costs run through the business. That total is seller's discretionary earnings: what one owner-operator takes home from the business.
- Apply the multiple for businesses like yours. Owner-run service businesses sold for 1.75 to 3.13 times SDE (2021 to 2025), 2.38 times in the middle. Your industry, size and how much the business depends on you decide where you sit.
- Cross-check with a multiple of sales. The same businesses sold for 0.48 to 1.04 times yearly sales. If the two methods disagree a lot, your margin is unusually high or low, and buyers will ask why.
- Adjust for what buyers pay more (or less) for. Recurring revenue, a team that runs without you, clean books and growth push you up the range. Customer concentration, an owner who does every job, and old equipment pull you down.
- Decide what is included. Most small business prices include the equipment and inventory needed to run it and exclude cash and debt. Real estate is usually priced separately.
A worked example
A service business with $750,000 in sales shows $120,000 profit. The owner pays themselves $80,000 and runs $10,000 of personal costs through the business.
| Owner earnings (SDE) | $120,000 + $80,000 + $10,000 = $210,000 |
|---|---|
| Low (1.75x) | $367,500 |
| Middle (2.38x) | $499,800 |
| High (3.13x) | $657,300 |
| Cross-check: sales x 0.48 to 1.04 | $360,000 to $780,000 |
Multiples: the 25th percentile, median and 75th percentile for service businesses that sold, from BizBuySell's valuation benchmarks.
Try it with your numbers
Our free calculators do the math: any small business, a home-service trade, or work out your SDE first. Selling soon? The business sale tax calculator estimates what you keep after tax.
Questions people ask
What is the most common way to value a small business?
A multiple of seller's discretionary earnings (SDE). It is how most business brokers and buyers of owner-run businesses price them.
What is SDE?
Net profit plus owner pay, interest, depreciation, amortization and personal or one-time costs. It shows the total benefit one owner-operator gets from the business.
Do I need a professional appraisal to sell?
Not to set an asking price, but a buyer using an SBA loan will need the lender's own appraisal, and a broker or certified appraiser will give you a defensible number.
How long does it take to sell a small business?
Often six to twelve months from listing to closing, longer if the books need cleaning up first.
Want a sharper number? Our free business analysis reads your real books and market and shows what would raise your price. See also what a business with $1 million in sales is worth.
This is an estimate for planning, not an appraisal or financial advice.