What Is My Business Worth? A Guide for Business Owners

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Why Most Owners Get This Wrong

When owners estimate the value of their own business, they almost always anchor to the wrong numbers. Some look at total revenue. Some add up assets. Some think about how much they've personally sacrificed over the years. None of these are how buyers — or the market — determines what a business is worth.

Buyers purchase future cash flow. They're asking: "After I buy this business and pay someone to do what the owner does, how much money will I make?" Everything else is secondary. If you don't understand that fundamental principle, your valuation expectations will be off — and you'll either price yourself out of the market or sell yourself short.

The Two Core Valuation Methods

Seller's Discretionary Earnings (SDE)

SDE is the most commonly used metric for valuing small businesses — generally those with under $2 million in annual earnings. It starts with net profit, then adds back the owner's salary, personal expenses run through the business, depreciation, amortization, interest, and any one-time or non-recurring expenses.

The result is the true economic benefit the business delivers to a full-time working owner. A buyer looking at an SDE of $300,000 is asking: "What multiple of $300,000 am I willing to pay?" The answer depends on industry, growth trend, risk profile, and other factors — but for most small businesses, that multiple lands somewhere between 2x and 4x SDE.

EBITDA Multiples

For larger businesses — typically those earning $1 million or more — buyers and brokers shift to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Unlike SDE, EBITDA does not add back owner compensation, because at this size the business is expected to run with professional management rather than a working owner.

EBITDA multiples for mid-market businesses in the $5M–$50M range typically run from 3x to 7x, depending heavily on industry, growth trajectory, customer concentration, and whether the business has a management team in place. Well-run businesses with strong systems and defensible margins command the top of that range.

What Drives Your Multiple Up — or Down

Two businesses with identical earnings can sell for very different prices depending on their characteristics. Here's what buyers pay a premium for:

• Recurring or contractual revenue — reduces buyer risk significantly
• Documented systems and processes — signals the business runs without the owner
• Diversified customer base — no single customer representing more than 15–20% of revenue
• Experienced, stable staff — reduces transition risk
• Strong lease with remaining term and renewal options
• Growth trend — a business growing year-over-year is worth more than a flat one
• Clean financials — tax returns that match P&Ls and no undisclosed liabilities

On the other side, buyers discount for: heavy owner dependency, revenue concentration in one or two clients, declining trends, messy or inconsistent financials, an expiring lease, and industries with high competition or regulatory risk.

Why Revenue Alone Means Almost Nothing

Sellers routinely say "I do $2 million in revenue" as if that sets the price. It doesn't. A business doing $2 million in revenue with $80,000 in net profit is worth far less than one doing $800,000 in revenue with $300,000 in profit. Margin is everything. Buyers are buying earnings, not top-line numbers.

Similarly, asset value only becomes a primary driver in asset-heavy businesses like manufacturing, construction, or real estate. For service businesses and retail, the multiple of earnings method dominates, and the physical assets are largely incidental.

The Problem with Guessing

Owners who guess their value — without a professional analysis — tend to make one of two critical errors. The first is overpricing, which means the business sits on the market, accumulates stigma, and ultimately sells for less than it would have if priced correctly from the start. The second is underpricing, which means leaving real money behind after years of hard work.

A professional valuation from a qualified broker isn't just about getting a number — it's about understanding why the number is what it is, what you could do to improve it, and whether now is the right time to sell or whether 12–18 more months of preparation would materially change your outcome.

When to Get a Valuation

You don't need to be ready to sell to get a valuation. Many of the owners I work with get a valuation 1–2 years before they plan to exit, specifically so they can identify improvements that will move the needle on price. Others are planning for retirement, a partner buyout, or estate planning. Whatever your reason, knowing what your business is worth today gives you options — and options are everything.