Business Valuation: What Is Your Business Actually Worth?

How Business Valuation Works

SDE Multiple

Seller's Discretionary Earnings

Best for: Small businesses under $1M profit

The owner's total economic benefit from the business. SDE = Net profit + owner salary + personal expenses + depreciation. Apply an industry multiple (typically 2-4x) to arrive at value. Most common method for Main Street businesses.

EBITDA Multiple

Earnings Before Interest, Tax, Depreciation, Amortization

Best for: Businesses over $1M profit

Strips out non-operating costs to show true operating earnings. Buyers and lenders prefer EBITDA for larger deals. Multiples range from 3-8x depending on industry and growth. See SDE vs EBITDA: Which Is Right for You.

Revenue Multiple

Annual Recurring Revenue or Gross Revenue

Best for: SaaS, high-growth businesses

Used when profitability is low but revenue is predictable and growing. SaaS businesses commonly trade at 3-7x ARR. Less appropriate for service businesses with variable margins.

Asset-Based

Net tangible asset value

Best for: Asset-heavy or distressed businesses

Values the business by what its assets are worth minus liabilities. Used for manufacturing, real estate-heavy businesses, or liquidation scenarios. Rarely used for profitable service businesses.

Typical Multiples by Business Type

These are market ranges, not guarantees. Your specific multiple depends on financials, growth trend, and transferability.

Multiples vary by deal size, market conditions, and individual business factors. For industry-specific ranges: EBITDA Multiple by Industry 2026.

What Increases Your Valuation

These factors compress buyer risk and directly expand your multiple.

• Recurring revenue: Contracts, retainers, subscriptions, and maintenance agreements all increase predictability and your multiple.
• Low owner-dependency: A business that runs without you is worth significantly more than one only you can operate.
• Diversified customer base: No single customer over 15-20% of revenue.
• Consistent growth trend: 3 years of increasing revenue or profit signals lower risk to buyers.
• Clean, reconciled financials: Three years of clear books. No unexplained anomalies, no personal expenses mixed in.
• Documented processes: SOPs, employee handbooks, and operational documentation show buyers a system, not just a revenue stream.

Full guide: How to Increase Your Business Valuation Before Selling.

What Decreases Your Valuation

Buyers discount for risk. These are the most common value killers.

• High customer concentration: One client representing 40% of revenue is an existential risk buyers will price in.
• Owner-dependent operations: If you are the product, the relationships, and the knowledge base, your business has limited transferable value.
• Declining revenue trend: Even profitable businesses sell at lower multiples if revenue has declined for 2+ years.
• Messy or inconsistent financials: Unexplained variances, mixed personal expenses, and missing records destroy buyer confidence.
• Non-transferable contracts: Leases, client contracts, or supplier agreements that require consent to transfer and may not be granted.
• Pending litigation or compliance issues: These become earn-out holdbacks or deal killers in due diligence.

When to Get a Formal Valuation

A formal appraisal from a certified business valuator (CBV) or ASA-credentialed appraiser is worth the cost in specific situations.

• Selling your business: A defensible third-party valuation strengthens your asking price in negotiations.
• Bringing on investors or partners: Establishes a baseline for equity pricing.
• Partner buyout: Provides a neutral number that removes personal bias from what is often a contentious conversation.
• Estate planning or divorce: Required for legal and tax purposes in many jurisdictions.
• SBA acquisition loan: Lenders require a formal valuation on most acquisition deals over $250K.

How to prepare: How to Prepare for a Business Valuation. The IBBA (International Business Brokers Association) maintains a directory of certified appraisers.