What is your business worth?
Enter your annual earnings and a multiple range. The result is the ballpark a buyer would start from, before diligence moves it.
Rough estimate only. Real valuations depend on industry, growth, owner involvement, customer concentration, and add-backs. A BizFacts report gives a fuller picture.
What to fix in the two years before you sell, which documents buyers ask for first, and how the offer-to-close sequence actually runs. One email, no course.
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How are small businesses valued?
Most small businesses sell for a multiple of seller's discretionary earnings, usually between 2 and 4 times. Seller's discretionary earnings, or SDE, is net profit with the owner's salary, personal expenses and one-off costs added back. It answers the only question a buyer really has: how much money does this business put in the pocket of the person running it?
What is the difference between SDE and EBITDA?
SDE includes one owner's salary as earnings. EBITDA does not. SDE is the standard for owner-operated businesses, where the buyer will replace the owner and take the salary themselves. EBITDA is used once a business is large enough to have real management in place, typically above about $1 million in earnings. Using the wrong one against the wrong multiple is the most common way an owner arrives at a wildly wrong number.
What makes a business worth a higher multiple?
Buyers pay more for earnings that will survive the owner leaving. The factors that move a multiple up, roughly in order of how much they matter:
- Low owner involvement, with a manager or team who already run the day to day
- Recurring or contracted revenue rather than one-off jobs
- No single customer worth more than 10% to 15% of revenue
- Three years of clean, consistent books that match the tax returns
- Growth, or at least stability, over the last three years
What drags a valuation down?
The same list in reverse, and one more: messy records. A business whose books do not reconcile with its tax returns gets discounted or gets no offer at all, because a buyer cannot finance what a lender cannot verify. Cleaning up the last three years of accounting is the highest-return thing most sellers can do before going to market.
How long before a sale should you get a valuation?
Two to three years earlier than most owners do. The changes that raise a multiple, reducing owner dependence, diversifying customers, tidying up the books, all take a year or more to show up in results a buyer can verify. A valuation on the day you decide to sell tells you your number. A valuation three years out lets you change it.
Common questions
How do I calculate my SDE?
Start with net profit from the tax return, then add back the owner's salary and payroll taxes, personal expenses run through the business, one-time costs that will not recur, plus interest, depreciation and amortisation. Every add-back has to be defensible with a document, because a buyer's accountant will ask about each one.
Is this valuation accurate enough to list a business at?
It is a starting range, not an appraisal. Industry, location, growth rate, customer concentration and lease terms all move the number, and an SBA lender will require an independent valuation before funding a deal anyway.
Do I have to pay taxes when I sell my business?
Yes, and how the deal is structured changes how much. An asset sale and a stock sale are taxed differently, and the allocation of the purchase price across asset classes moves the bill significantly for both sides. Bring a tax advisor in before you agree to a structure, not after.