🏢 Business Valuation Calculator

📅 Business Financials

📊 Industry Valuation Benchmarks (2024–2025)

Typical multiples paid in arm's-length transactions. Actual multiples vary based on growth, customer concentration, and owner dependence.

📚 How to Value a Small Business: Complete Guide

Business valuation is both an art and a science. Buyers and sellers use multiple methods to arrive at a fair price, and the final number is always a negotiated range rather than a precise figure.

1. Seller's Discretionary Earnings (SDE) Method

The SDE method is the most common approach for businesses generating under $5 million in annual revenue. SDE represents the total financial benefit to a single, full-time owner-operator: net income plus the owner's salary, owner's benefits, depreciation, amortization, interest, and any one-time or non-recurring expenses. The SDE multiple is then applied based on business quality. A basic lifestyle service business with heavy owner involvement might sell for 1.5–2× SDE, while a systematized agency with documented processes, recurring clients, and a management team might command 3–4× SDE.

2. EBITDA Multiple Method

Mid-market businesses ($5M–$50M in revenue) are typically valued on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) rather than SDE. EBITDA removes the owner's personal compensation and is comparable across companies. Private equity firms and strategic buyers use EBITDA multiples because EBITDA approximates operating cash flow. EBITDA multiples for small businesses typically range from 3× to 8×. High-growth SaaS businesses can reach 15–20× EBITDA, while capital-intensive manufacturing businesses often trade at 3–5×.

3. Revenue Multiple Method

The revenue multiple is used as a quick sanity check and for businesses with low or inconsistent profitability, particularly SaaS companies in growth mode. Revenue multiples range from 0.2–0.6× for low-margin industries like restaurants to 3–8× ARR for high-growth SaaS businesses. Revenue multiples are strongly correlated with gross margin: an 80% gross margin SaaS business deserves a higher revenue multiple than a 20% gross margin staffing agency at the same top-line revenue.

4. Discounted Cash Flow (DCF) Method

The DCF method projects future free cash flows and discounts them back to present value using a discount rate that reflects the business's risk. For small businesses, discount rates of 15–30% are typical, reflecting the higher risk of private, illiquid assets compared to public stocks. The DCF method is most reliable when cash flows are stable and predictable. Use it alongside SDE and EBITDA multiples rather than in isolation.

5. Private Company Discount (DLOM)

Private companies sell at a 20–30% discount to equivalent public companies due to the Discount for Lack of Marketability (DLOM). This reflects the illiquidity of private shares, the limited buyer pool, and transaction costs. The discount narrows as businesses grow larger and demonstrate more institutional-quality operations with clean financials and documented processes.

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