What Is Your Business Worth? How Buyers Actually Price It
Most business owners have no idea what their company is actually worth — until they see a real deal broken down, or a buyer hands them an offer that looks nothing like the number in their head. That gap costs owners money on both ends: some sell for far less than they should, and others price so high they scare off every serious buyer. Here is the honest, plain-English version of how buyers actually value a business — and what you can do to move your number up before you ever go to market.
The Formula Every Buyer Uses: SDE × Multiple
Valuing a small or mid-sized business is not mysterious. It comes down to two numbers: your real earnings, and a multiple applied to those earnings. Get both right and you know your range. Everything else — the story, the growth, the risk — simply moves you up or down within it.
What SDE Really Is (and Why It Is Not Your Tax Return)
The earnings number buyers care about is SDE — seller’s discretionary earnings. It is what the business actually puts in an owner’s pocket in a year, and it is almost never the profit line on your tax return. You start with net profit, then add back:
- Owner’s salary and payroll — the compensation you pay yourself as the working owner.
- Personal expenses run through the business — vehicles, travel, phones, meals, and other discretionary costs.
- One-time or non-recurring costs — a lawsuit, a major repair, a move, anything that will not repeat for a buyer.
- Interest, depreciation, and amortization — financing and non-cash accounting items.
For larger businesses (generally above roughly $1M in earnings), buyers shift from SDE to EBITDA, which does not add back a market-rate salary for a replacement manager. Either way, the goal is the same: the true, transferable earning power of the business.
The Multiple: What Buyers Pay Per Dollar of Earnings
Once you have SDE, you apply a multiple. For most main-street and lower-middle-market businesses, that multiple lands between 2 and 4 times SDE. Where you fall in that range is where the real money is made or lost.
| Industry | Typical SDE Multiple |
|---|---|
| Market median (all businesses) | 2.7× |
| HVAC | 3.0–5.0× |
| Plumbing | 2.5–4.5× |
| Home services / cleaning | 2.0–3.5× |
| Landscaping | 2.0–3.5× |
| Restaurants | 1.5–3.0× |
| Professional services | 2.0–3.3× |
These are guidelines, not appraisals — the exact figure depends on the four value drivers below. But they show why two businesses with identical earnings can be worth very different amounts.
The Four Things That Push Your Value Up
- Recurring or contracted revenue. Predictable, repeat income is worth far more than one-off jobs. A maintenance contract book is the single biggest multiple booster in home services.
- It runs without you. If the business depends on the owner for sales, relationships, or production, a buyer is really buying a job — and that caps the price. A real management team and documented systems change the math.
- Clean, provable books. When a buyer can verify the numbers quickly, they pay up. When they have to guess, they discount for risk.
- Growth. A business trending up is worth more than one that is flat, and far more than one sliding backward.
What Quietly Drags Your Value Down
- Owner dependence — the business is you.
- Messy or unprovable financials — the number one killer of deals in diligence.
- Customer concentration — one client making up a large share of revenue.
- Declining or lumpy revenue — unpredictability scares buyers and lenders.
The Reframe Most Owners Miss
The number in your head is not the number. The market does not pay for what you need to retire, or what you have put into the business over the years. It pays for transferable, provable profit. The good news: the same drivers that raise your multiple are things you can fix — often adding years of income to your final price if you start 12 to 24 months before you sell.
Frequently Asked Questions
How do I calculate SDE for my business?
Start with your net profit, then add back your owner salary, any personal expenses running through the business, one-time costs, and interest, depreciation, and amortization. The result is your seller’s discretionary earnings — the number buyers multiply.
What multiple will my business sell for?
Most main-street businesses trade between 2 and 4 times SDE, with the median around 2.7 times. Your exact multiple depends on recurring revenue, owner dependence, the quality of your books, and your growth trend.
Should I use SDE or EBITDA?
Smaller, owner-operated businesses are valued on SDE. Larger businesses — generally those with over about $1M in earnings and a management team in place — are valued on EBITDA, which does not add back an owner’s salary.
How can I increase my business’s value before selling?
Build recurring revenue, reduce how much the business depends on you, clean up your financials so every dollar is provable, and show a growth trend. Starting 12 to 24 months before a sale gives these changes time to show up in the numbers.
What Is Your Business Actually Worth?
If you want a real answer — not a guess — that is exactly what we do. CBH Business Group is a Florida M&A advisory and business brokerage firm (Top 50 Brokers in Florida, 2024 & 2025). We will run your numbers and tell you the truth about your value, free and with no obligation.
Get a free valuation at https://cbhbusinessgroup.com/valuation-calculator, book a confidential call at https://calendly.com/jesse-cbhadvisory, or call Jesse Hastings directly at (407) 908-3845.