How Much Is Your Business Worth?

You typed the question because you want a number. Maybe a competitor just sold. A friend mentioned her asking price. Or you're three years from selling and want to know whether the hours still add up to something a buyer would pay for.

For most owner-operated businesses, the market answer starts with the same formula: seller's discretionary earnings times a multiple. On BizBuySell's full-year 2025 data for U.S. small-business sales, the average cash-flow multiple landed at 2.61×, with a median sale price of $350,000. That's a market average across closed listings, not a promise for your firm. What moves your number is what you add back, which multiple fits your size and risk, and whether a buyer believes those earnings survive without you.

How much is my business worth?

For a profitable, owner-operated small business, buyers usually price from cash flow you can document. Revenue and the hours you worked rarely set the price on Main Street. The common approach is SDE × a multiple, sometimes with inventory at cost added in broker practice. A formal appraisal, a bank package, or a divorce settlement needs a different level of work; a rule of thumb is for orientation only.

If you're looking for a rough range tonight, start with last year's full financial benefit to you as owner, then apply a dated market multiple for businesses of your size. If you're negotiating a sale, filing taxes, or dividing assets, skip the DIY sheet and hire a professional.

How do I calculate what my business is worth?

You rebuild one year of earnings as a buyer would see them, then multiply. NerdWallet's small-business valuation guide and BizBuySell's CPA guide to seller's discretionary earnings both start there: pretax profit, plus one owner's pay and benefits, plus supportable personal or one-time expenses a buyer would not keep.

Pull three years of financials if you can. Bank of America flags that purpose (sale, estate, restructuring) should drive the method, and that customer concentration and management depth change what a buyer will pay. Clean books shorten the argument; messy add-backs lengthen it.

A worked sketch for a solo service firm might look like this. Net pretax profit $80,000. Owner salary and benefits you paid yourself $90,000. One-time website rebuild and personal travel booked through the company $15,000. SDE ≈ $185,000. At a 2.5× multiple, enterprise value ≈ $462,500 before working capital and inventory adjustments. Change any add-back and the number moves. Change the multiple and it moves more.

Don't multiply revenue. Main Street buyers of small, owner-operated firms price from discretionary earnings; revenue multiples belong to other deal types and other size bands.

What is seller's discretionary earnings (SDE)?

SDE is the full economic benefit to one owner-operator for a year. It starts with pretax profit, then adds back that owner's compensation and benefits, then adds discretionary, personal, or non-recurring expenses a new owner would reasonably stop paying. Reliant Business Valuation describes the same base for SBA-style appraisals of Main Street deals.

SDE answers a buyer's real question: what does this business put in one person's pocket if she steps into the job? That's why it's the usual earnings base for owner-operated firms rather than GAAP net income alone.

Two traps show up constantly. First, stacking add-backs that a buyer will reject (lifestyle costs with no paper trail, or "discretionary" expenses that are actually required to keep clients). Second, using last year's best year without adjusting for a one-off contract that will not renew. Buyers underwrite the earnings they expect to keep.

What is the difference between SDE and EBITDA?

SDE adds back one working owner's pay because the buyer is expected to do that job, or to hire someone and pay for it out of the earnings. EBITDA (and adjusted EBITDA) leaves a market-rate manager cost in the numbers; it assumes the business already runs with paid management. Simply Business Valuation and Eqvista's SDE vs EBITDA explainer both warn that mixing an SDE multiple with an EBITDA figure is a common pricing error.

SDE is usually the larger earnings number and usually carries a lower multiple. EBITDA is the smaller earnings number and usually carries a higher multiple. Comparing a 3× SDE quote to a 5× EBITDA quote without translating the base is how founders talk past brokers.

As deals get larger, buyers shift toward EBITDA. IBBA Market Pulse medians for U.S. deals, cited by Iconic for Q2 2026, show under-$500K deals at 2.0× SDE, $500K–$1M at 2.8× SDE, and $1M–$2M at 3.1× SDE, while lower middle market $2M–$5M deals sit at 4.0× EBITDA. Same survey family, different earnings base at different size.

What multiple will my business sell for?

There's no single "good" multiple. There's a dated market average, and there's where your risk profile sits relative to that average.

BizBuySell's 2024 Insight Report put the average cash-flow (SDE) multiple at 2.57× for the full year, up from 2.49× in 2023, with a median sale price of $345,000. Their 2025 Year in Review moved the average to 2.61×, median sale price $350,000, median cash flow $158,950. Service businesses led deal volume in 2025 on that marketplace; volume isn't the same as a premium multiple for every firm.

Reliant's SBA appraisal database reports a median SDE multiple near ~3.0×, with a general range of 1.5×–4.0× for businesses under roughly $5M revenue. That dataset is SBA-financed appraisals, not the same pool as BizBuySell's broker-reported closed listings. Keep them separate; don't average them into one number.

Morgan & Westfield's practitioner ranges for firms under $5M revenue put many service, retail, and food businesses in a 2–3× SDE band, with manufacturing often higher. Rules of thumb are orientation tools. Art of Business Valuation itself calls typical small-business SDE multipliers roughly 1–3 with an average near 2.2, and states plainly that a rule of thumb is not a professional valuation.

In Canada, BDC discusses 3–6× EBITDA for small to medium acquisitions, industry-dependent (updated July 28, 2025). That's an EBITDA frame for SME deals, not a drop-in replacement for a Main Street SDE multiple on a solo consultancy.

Why are service businesses valued differently?

Buyers of service businesses are usually buying transferable cash flow and relationships, not shelves of inventory or a plant full of equipment. That makes goodwill fragile: clients and reputation often sit with the founder, so transferability and attrition risk get priced into the multiple.

Reliant's comparison of a dental practice to a liquor store shows the pattern. High owner involvement, patient attrition risk, and a narrow buyer pool can pull a service profile toward 1.5×–2.0× SDE in their framework, while a more transferable retail profile can sit nearer 3×–4×. Morgan & Westfield still puts many service firms under $5M in a 2–3× SDE band; the spread inside that band is where owner dependence lives.

Wells Fargo's reporting on women-owned businesses finds that about half of women-owned businesses sit in four service industries. If you run a practice, agency, consultancy, or care business, the pages that teach valuation as if you had a storefront full of goods are answering a different question than the one you asked.

With few hard assets, the value lives in earnings that survive a change of ownership. Documented delivery, shared client relationships, and contracts that renew without your personal charm are what make that earnings story believable.

Why is it worth more when it runs without you?

Buyers pay for earnings that continue after the seller leaves. If revenue, sales, and delivery walk out with you, the multiple compresses. In extreme cases, owners on sale forums describe value falling toward assets minus liabilities once the key-person risk is obvious.

Bank of America puts management concentration on the short list of value drivers: what happens if you walked out tomorrow. Reducing founder dependency (documented delivery, clients who know more than one person, a number two who can run the week, proof the business survived your absence) is one of the highest-return value moves, usually over 12–24 months rather than a weekend of SOPs before listing.

A useful test: if you stopped for three months, could somebody run it? If the honest answer is no, you still have an earnings stream. You may not yet have a transferable business at the multiple you want.

How do I increase the value of my business?

You raise what a buyer trusts: grow transferable earnings (SDE or EBITDA) and raise the multiple by cutting risk. Morgan & Westfield frames those as the two direct paths. The levers that move multiples most for small and service businesses are recurring or contracted revenue, clean and documented financials, diversified customers, and a company that demonstrably runs without the founder.

Baton notes that recurring revenue only helps when it is durable and verifiable. A "retainer" that is really a handshake and a hope will not survive diligence. BDC's guide to selling pushes the same preparation list Canadians hear from valuators: document SOPs, fill management gaps, fix concentration, get the financials ready.

Start 18–36 months before a planned sale when you can. Cosmetic fixes at listing time rarely recover a full turn of multiple. Early work on concentration, systems, and a second leader compounds; last-minute tidy-ups mostly shorten diligence arguments.

What other methods do appraisers use?

Earnings multiples are the workhorse for profitable operating businesses. They aren't the only tool.

NerdWallet, BDC, Bank of America, Baton, and Nav all describe the same family of approaches:

1. Income / earnings multiple: SDE or EBITDA × multiple.
2. Market / comparable sales: adjust from similar closed deals (private comps are sparse; brokers and appraisers use databases).
3. Asset-based / adjusted net assets: fair-market assets minus liabilities; often a floor for unprofitable, asset-heavy, or liquidation situations.
4. Discounted cash flow / capitalisation of earnings: more common when earnings are expected to change sharply, or for estate and planning work.

BDC notes that professional valuators in Canada typically confirm with income, assets, and comps together. The Canadian credential is Chartered Business Valuator (CBV) via the CBV Institute. BDC does not provide valuation services; it points owners to a valuator and publishes a free business valuation guide.

Can I value my business myself?

Yes, for curiosity, early exit thinking, and a sanity check on an asking price. BKC CPA and Art of Business Valuation both treat rules of thumb as having a place, with clear limits. An online calculator that applies IBBA-style medians can give a ballpark; it isn't a valuation you should take into a negotiation.

Get a formal valuation when money, tax, or legal outcomes depend on the number: a sale you'll rely on, estate or gift planning, divorce, a shareholder buyout, bank or SBA-style financing diligence, or litigation. In Canada, that usually means a CBV (or a broker/appraiser package appropriate to the deal). BDC outlines calculation, estimate, and full report levels for different purposes.

This post is for the founder who wants to understand the drivers years before a listing. If you need a number for a courtroom, a tax filing, or a binding offer tonight, a CBV or qualified appraiser is the better answer. If you only want a rough curiosity range, a reputable calculator or a broker's informal range may be enough for this week.

What documents do I need?

At minimum, expect multi-year financial statements (often at least three years), tax returns, a current interim P&L and balance sheet, and a clear list of add-backs with receipts. Customer lists with concentration percentages, contracts, employee or contractor arrangements, and any leases matter for service firms. Bank of America puts paperwork and special circumstances (concentration, succession, industry heat) on the same checklist as method choice.

If your books mix personal and business spending, clean that up before you ask anyone for a multiple. Diligence will find it.

FAQ

How long before selling should I start thinking about valuation?
Years, not weeks. Owners who wait until a letter of intent often discover that concentration, founder dependency, and messy financials take 12–36 months to repair. Start when you still have time to change the earnings story.

How do you value a business with few hard assets?
From transferable cash flow: SDE or EBITDA, adjusted for how much of that cash flow survives without you. Asset value is a floor; for most profitable service firms, the earnings approach does the real work. See Reliant and Morgan & Westfield on how service profiles price differently from asset-heavy ones.

Does owner dependence lower the value?
Yes. It's one of the clearest multiple compressors for professional services. The fix is operational (shared clients, documented delivery, a second leader), and it shows up in the price only after it shows up in how the business actually runs.

When do I need a professional valuation?
When the number has legal, tax, lending, or sale consequences you'll rely on. Curiosity and early planning can use a DIY range; a CBV or qualified appraiser is for decisions that bind you. Fair Market Value's certified vs online comparison draws that line for U.S. readers; Canadian owners should ask a CBV which report level matches the purpose.

Where this leaves you

SDE times a dated multiple is the market's average language. Whether your firm earns that multiple depends on earnings quality, concentration, documentation, and whether the company still runs when you aren't in every room.

If you want earlier M&A education rather than a last-minute listing scramble, Athena Collective partnered with Speed M&A by JonesSpross so founders can hear how valuation drivers and deal structures work years before a sale is on the table. You can also see the two membership plans (no revenue gate, no application), who we are about, and what sits in resources.

Worth depends on whether the business runs without you. The free check at athenacollective.co/check is 35 plain statements, about four minutes, and it ends with the three competencies that matter next for you. Two of the statements are "You have some idea what the business is worth, and why" and "If you stopped for three months, somebody could run it."