Small Business Valuation Calculator

An SDE multiple is the number you multiply your SDE by to estimate the total value of your business. If your SDE is $200,000 and the applicable multiple is 2.5x, the estimated business value is $500,000.

What determines the multiple:

• Industry — This is the single biggest factor. Technology and healthcare businesses command higher multiples (3x–6x) due to scalability and recurring revenue, while restaurants and retail trade at lower multiples (1.5x–3x) because of tighter margins and higher operational risk.
• Revenue growth — A business growing at 15%+ per year is worth significantly more than one with flat or declining revenue. Buyers are purchasing future cash flows, not just current ones.
• Recurring revenue — Subscription or contract-based revenue is more predictable and valuable than one-time sales. A business with 70%+ recurring revenue can command a premium multiple.
• Owner dependence — If the business falls apart without the current owner, the multiple drops. Buyers want to know the business runs on systems, not on one person's relationships and knowledge.
• Customer concentration — If one client represents 30%+ of revenue, that's a risk. Diversified revenue across many customers supports a higher multiple.
• Profitability (SDE margin) — Higher margins signal pricing power and operational efficiency. Businesses with SDE margins above 25% typically trade at the upper end of their industry range.

Typical small business SDE multiples range from 1.5x to 4x, with the majority of deals closing between 2x and 3x. Businesses with SDE above $500K can sometimes achieve 4x+ multiples because they attract more sophisticated buyers, including private equity groups.

Getting the add-backs right is critical — they can represent 30–50% of your total SDE calculation. Here are the categories of legitimate add-backs, along with common items buyers and brokers expect to see:

Owner's compensation (always added back):

• Salary and wages — Whatever the owner pays themselves on the payroll.
• Payroll taxes on owner salary — The employer portion of FICA on the owner's wages.
• Owner benefits — Health insurance, life insurance, retirement contributions paid by the business for the owner.

Owner perks and discretionary expenses:

• Personal vehicle — Business-paid car lease, insurance, gas, and maintenance if primarily for personal use.
• Meals and travel — Personal dining, vacations classified as business travel.
• Family members on payroll — If family members are paid but don't perform meaningful work, add back their compensation.
• Personal subscriptions and memberships — Country club dues, streaming services, personal phone.

Non-cash and financing charges:

• Depreciation and amortization — Non-cash charges that reduce reported profit but not actual cash.
• Interest expense — The buyer will have their own financing structure, so current debt service is irrelevant.

Non-recurring / one-time expenses:

• Lawsuit settlements — One-time legal costs that won't recur.
• Equipment failure — Unusual repair or replacement costs.
• Moving or renovation costs — One-time facility expenses.
• COVID-related expenses — PPE, plexiglass, unusual cleaning costs that are no longer necessary.

A word of caution: Be honest with add-backs. A sophisticated buyer will scrutinize every line item. Inflating SDE with aggressive add-backs that don't hold up under due diligence will torpedo a deal faster than a lower SDE with clean, defensible numbers.

An SDE-based valuation gives you a reasonable ballpark, not a precise appraised value. Think of it as the starting point for a negotiation, not the finish line. Here's what makes it useful — and where it falls short.

What SDE-based valuation gets right:

• Industry context — Using industry-specific multiples anchors the valuation to real transaction data. Brokers track hundreds of closed deals per year and the median multiples are well-established.
• Buyer perspective — SDE directly answers the buyer's core question: "How much cash will I take home if I own this business?" It's the metric that drives most small business acquisitions.
• Simplicity — You don't need a complex DCF model or market comps database to get a directionally useful answer.

Limitations to keep in mind:

• Wide range — A 1.5x to 3.5x multiple range on $200K SDE gives you a value anywhere from $300K to $700K. That's a massive spread. The actual multiple depends on dozens of qualitative factors this calculator can't fully capture.
• No market dynamics — The number of active buyers, SBA lending conditions, and local market factors can shift real-world pricing significantly.
• Asset value ignored — SDE multiples focus on earnings power. If your business has significant real estate, equipment, or inventory, an asset-based valuation may yield a higher floor price.
• Trailing financials only — SDE is backward-looking. A business with a signed contract doubling revenue next year is worth more than its trailing SDE suggests.

Best practice: Use this calculator to establish a rough range, then get a formal business appraisal (typically $3,000–$10,000) or work with a business broker if you're seriously considering selling. The broker's opinion of value will factor in market conditions, buyer demand, and intangible assets that a formula can't capture.

SDE and EBITDA are both measures of a business's earning power, but they're used for different types of businesses and different buyer profiles. The key difference is whether the owner's salary gets added back.

SDE (Seller's Discretionary Earnings):

• Adds back the owner's total compensation (salary + benefits + perks)
• Used for owner-operated businesses under ~$1M SDE
• Assumes the buyer will work in the business and replace the owner
• Typical SDE multiples: 1.5x – 4x

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization):

• Does not add back a manager's salary — assumes the business needs a paid operator
• Used for larger businesses with $1M+ EBITDA or professional management teams
• Assumes the buyer is a financial investor (private equity, strategic acquirer) who will hire a manager
• Typical EBITDA multiples: 4x – 8x (higher because a manager's salary isn't included)

The transition point: As a business grows past roughly $1M in SDE, it typically shifts from SDE-based to EBITDA-based valuation. At this size, the owner usually isn't the sole operator, and potential buyers are more likely to be private equity firms or strategic acquirers who will install professional management.

Why the multiples look different: A 3x SDE multiple and a 6x EBITDA multiple might produce similar valuations for the same business. That's because SDE is a larger number (it includes the owner's salary) and gets multiplied by a smaller number. EBITDA is smaller (after deducting a manager's salary) but gets multiplied by a higher number.

The best time to start increasing your business value is 2–3 years before you plan to sell. Most value-building strategies take time to show up in the financials and can meaningfully shift your SDE multiple upward.

Increase SDE (the numerator):

• Cut unnecessary expenses — Buyers value clean, lean P&L statements. Eliminate any expenses that don't directly support revenue or operations.
• Raise prices — Many small businesses underprice. A 5–10% price increase that doesn't reduce volume flows directly to SDE.
• Clean up the books — Professional, accrual-basis financials reviewed or compiled by a CPA make buyers confident. Messy books create distrust and lower offers.

Increase the multiple (the multiplier):

• Reduce owner dependence — Document every process. Cross-train employees. If you can take a 4-week vacation and revenue doesn't drop, your business is transferable. That's the single most important factor for the multiple.
• Build recurring revenue — Convert one-time customers to subscriptions, maintenance contracts, or retainers. Recurring revenue is worth 2–3x more than project-based revenue.
• Diversify the customer base — No single customer should represent more than 10–15% of revenue. Customer concentration is a deal-killer.
• Show consistent growth — 3 years of steady revenue growth (even 5–10%) signals a healthy business trajectory and commands premium multiples.
• Lock in key employees — Retention agreements, stay bonuses, or equity participation for key staff reduce transition risk for buyers.
• Protect intellectual property — Trademarks, proprietary processes, exclusive supplier agreements, and long-term customer contracts all create defensible value.

The math: If you increase SDE from $200K to $250K (25% improvement) and the multiple moves from 2.5x to 3x due to improved quality, your valuation jumps from $500K to $750K — a 50% increase in business value. Improving both the numerator and the multiplier creates compounding effects.

Selling a small business typically takes 6–12 months from the decision to sell to closing. The process has several distinct phases, and understanding them helps you set realistic expectations and maximize your sale price.

Phase 1: Preparation (1–3 months)

• Get a professional business valuation or broker's opinion of value
• Clean up financial statements (ideally 3 years of tax returns and P&L statements)
• Calculate your SDE with defensible add-backs
• Decide whether to use a business broker (typical commission: 8–12% of sale price) or sell independently

Phase 2: Marketing (2–4 months)

• Create a Confidential Information Memorandum (CIM) describing the business
• List on marketplaces like BizBuySell, BusinessBroker.net, or Acquisition.com
• Screen buyer inquiries and require NDAs before sharing financials
• Conduct initial meetings with qualified buyers

Phase 3: Negotiation (1–2 months)

• Receive and evaluate Letters of Intent (LOIs)
• Negotiate price, terms, transition period, and non-compete agreements
• Accept an LOI and enter exclusivity period with the buyer

Phase 4: Due Diligence and Closing (2–3 months)

• Buyer verifies financials, contracts, leases, and legal standing
• SBA loan approval (if applicable — most small business acquisitions use SBA 7(a) loans)
• Draft and sign the Asset Purchase Agreement (APA) or Stock Purchase Agreement
• Transfer ownership, train the buyer, and transition relationships

Deal structure matters: Most small business sales involve some seller financing (10–20% of the purchase price held in a seller note). SBA lenders often require this as a sign of the seller's confidence in the business. Expect a 2–5 year note at market rates.

Technically yes, but the results need significant context. Very small businesses (under $100K in revenue) present unique valuation challenges that SDE multiples alone don't fully address.

Challenges with micro-businesses:

• Extremely limited buyer pool — Most business buyers aren't interested in businesses generating less than $100K SDE because the income doesn't justify the time and risk of a full acquisition. At this level, you're mostly selling to first-time entrepreneurs or people buying themselves a job.
• SBA financing usually unavailable — SBA 7(a) loans, which fund the majority of small business acquisitions, typically require minimum revenue thresholds and demonstrated profitability. Sub-$100K businesses often don't qualify.
• Multiples compress significantly — For very small businesses, expect multiples at the low end of the industry range (1x–1.5x SDE). Some micro-businesses effectively sell for the value of their assets plus a small premium for the customer list or brand.
• Asset value may exceed earnings value — If the business owns equipment, inventory, or a favorable lease, those tangible assets might be worth more than the SDE multiple would suggest.

Alternative valuation approaches for micro-businesses:

• Asset-based valuation — Sum up equipment, inventory, accounts receivable, and intangibles (brand, customer list).
• Revenue multiple — Some very small businesses trade on a 0.3x–0.8x revenue basis rather than SDE.
• Replacement cost — What would it cost to build this business from scratch? Sometimes that's the most meaningful benchmark.

The SDE calculation in this tool still works for micro-businesses — just keep in mind that real-world multiples at this scale tend to be lower than published industry averages, which are skewed toward larger transactions.

SBA 7(a) loans are the engine behind most small business acquisitions. Understanding how SBA lending works is critical because it directly influences what buyers can afford to pay — and therefore what your business is worth in practice.

How SBA loans work for business acquisitions:

• The SBA guarantees up to 85% of loans under $150K and 75% for larger amounts, which makes banks willing to lend for business acquisitions.
• Maximum loan amount: $5 million. Most small business acquisitions fall well under this.
• Typical terms: 10-year repayment period with interest rates of Prime + 2.75%.
• Buyer typically needs 10–20% down payment (equity injection), with the SBA loan covering the rest.

Why SBA eligibility raises your price:

• Larger buyer pool — When buyers can finance 80–90% of the purchase price, more people can afford to buy your business. More competition = higher price.
• Debt service coverage — SBA lenders require a minimum debt service coverage ratio (DSCR) of 1.25x, meaning SDE must be at least 1.25x the annual loan payments. This effectively caps how much the SBA will finance based on your SDE.
• Maximum SBA-financeable price formula: Take your SDE, divide by the annual loan payment per dollar borrowed, and multiply by the DSCR. In practice, for a 10-year SBA loan, this usually supports a purchase price of about 2.5x–3x SDE.

What makes a business SBA-eligible: Clean financial records (3 years of tax returns), positive cash flow, a business that's been operating for at least 2 years, and a deal structure that includes 10–20% seller equity injection. Seller financing (a portion of the price paid via a seller note) is often required and can count toward the buyer's equity injection.

The bottom line: If your business can be financed via SBA, you'll generally achieve a higher price than if buyers have to come up with all cash or find alternative financing. Making your business "SBA-ready" is one of the most practical things you can do to maximize sale price.

Business owners almost always overvalue their business the first time they run the numbers. This isn't a character flaw — it's natural when you've poured years of sweat into building something. But unrealistic expectations are the number one reason deals fall apart.

The most common valuation mistakes:

• Confusing revenue with value — A $1M revenue business is not worth $1M. Revenue is vanity; SDE is reality. A $1M revenue business with $100K SDE might only be worth $200K–$300K.
• Aggressive add-backs — Claiming every possible expense as a discretionary add-back inflates SDE on paper but won't survive due diligence. Buyers and their accountants will question every line item.
• Using the wrong multiple — Owners read about a tech company selling for 6x and assume their dry cleaner deserves the same. Industry matters enormously. Always use multiples from your specific sector.
• Ignoring owner dependence — If you are the brand, the key salesperson, and the only person who knows the recipes, the business has significant key-person risk. This drags the multiple down, sometimes by 1–2x.
• Valuing future potential instead of current performance — "This business could easily do $2M if someone just..." is not a valuation — it's a pitch. Buyers pay for proven, documented performance.
• Forgetting deal costs — Broker commissions (8–12%), legal fees ($5K–$15K), accounting fees, and taxes on the sale can eat 15–25% of the purchase price. Your net proceeds are significantly lower than the headline number.
• Using one year of financials — One great year is an anomaly. Buyers want to see 3 years of financials and will weight the average or the trend. Using a single peak year as your SDE will lead to disappointment.

The reality check: The median small business sells for about 2.3x SDE. If your estimate is above 4x and you're not in tech or healthcare, it's worth pressure- testing your assumptions with a broker or appraiser before going to market.