What Is My Business Actually Worth? (And How to Increase It Before You Sell)
- May 3
- 4 min read
Updated: May 9
Every business owner has a number in their head. A figure that represents what they believe their business is worth — what they’ve put into it, what they’ve built, what it means to them.
And almost every time, that number is wrong.
Not because the business isn’t valuable. It is. But because the way owners calculate value is fundamentally different from how buyers calculate it, and buyers are the ones writing the check.
If you’re asking “what is my business worth,” the answer depends on how buyers evaluate risk, earnings, and future potential — not just what you’ve invested.
Understanding that gap before you go to market is one of the most important things you can do to realize the full value of what you’ve spent years building..
How Buyers Actually Value a Business
For most Main Street businesses selling under $5 million, buyers use one primary metric:
Seller’s Discretionary Earnings (SDE)
SDE represents the true economic benefit of owning the business. It includes:
→ Net profit
→ Owner’s salary
→ Add-backs (personal expenses, one-time costs, depreciation, perks)
What Is SDE (Seller’s Discretionary Earnings)?
SDE (Seller’s Discretionary Earnings) is the most common method used to value small businesses. It represents the total financial benefit a single owner-operator receives from the business.
SDE
The formula
Net Profit + Owner’s Salary + Add-backs = SDE
Once SDE is established, buyers apply a multiple — typically between 2× and 3.5× — to determine value.
A business with $150,000 in SDE:
At 2.5x → $375,000
At 3.0x → $450,000
That difference doesn’t come from accounting. It comes from perceived risk.
Once SDE is established, the buyer applies a multiple (typically
between 2× and 3.5× for Main Street businesses) depending on several factors. A $150,000 SDE business at 2.5× sells for $375,000. The same SDE at 3.0× sells for $450,000. The multiple matters enormously.
What Drives a Business Valuation Multiple
Not all businesses with the same SDE are worth the same. The multiple reflects risk. The lower the risk to a new owner, the higher the multiple they'll pay. The following factors can drive the multiple up or down:
→ Recurring revenue
Subscription-based or contract revenue is worth more than project-based revenue. A cleaning company with 80 weekly accounts commands a higher multiple than one that rebids every job.
→ Owner dependency
If the business runs primarily because of you (including your
relationships, your skills, and your reputation), buyers see risk. Every hour you spend in the business that a new owner can't easily replicate reduces the multiple.
→ Customer concentration
If your top customer represents more than 20% of revenue, that's a red flag. Buyers price in the risk that the customer could leave with you.
→ Years in operation
Longevity signals stability. For example, a business operating profitably for 10+ years commands a premium over one that's been around for 3.
→ Clean financials
Tax returns and P&Ls that are easy to read and verify reduce buyer skepticism. Messy books create doubt and reduce offers.
→ Growth trend
A business growing 15% year over year is worth more than one with flat revenue, even at the same SDE. Buyers are buying the future, not just the past.
2-3.5x
Typical multiple range for Main Street businesses
Where your business lands within that range depends on risk factors noted above: owner dependency, recurring revenue, customer concentration, and the quality of your financials. The difference between 2× and 3× on a $200,000 SDE business is $200,000 in your pocket.
What sellers get wrong
The most common mistake is confusing asset value with business value. A restaurant owner with $400,000 in equipment and buildout assumes the business is worth $400,000. A buyer sees $400,000 in assets but asks: what does it earn? If the SDE is $80,000 and the multiple is 2.5×, the business is worth $200,000 — regardless of the equipment.
The second mistake is ignoring add-backs. Many owners under-report their true earnings because they run personal expenses through the business (e.g., vehicle costs, phone bills, travel expenses, and health insurance). These are legitimate add-backs that increase SDE and therefore increase the sale price. Not claiming them is leaving money on the table.
A REAL EXAMPLE - If you're considering passing your business to a family member, the earlier you begin that transition — with real structure, real training, and real legal documentation — the better the odds. The 40% success rate for second-generation transitions isn't fate. It's the result of planning, or the lack of it.
Industry matters too
Multiples vary significantly by industry. For example, businesses with high barriers to entry, licensed professionals, or strong recurring revenue command higher multiples. Service businesses without physical assets often sell at lower multiples because there's less to hold as collateral for SBA financing.
As of 2025: HVAC, plumbing, electrical, and other licensed trades sell at 2.5–3.5×. Professional services (accounting, consulting) sell at 1.5–2.5×. Retail and restaurants sell at 1.5–2.5×. Software and tech-enabled businesses sell at 3–5×. Cleaning, landscaping, and staffing sell at 2–3×.
The SBA financing factor
The vast majority of Main Street business sales are financed with an SBA 7(a) loan. This matters because lenders underwrite the deal, evaluating the same SDE and deciding how much they'll lend. If the SDE doesn't support the debt service at the asking price, the deal won't get financed, regardless of what you think it's worth.
Understanding SBA debt service requirements before you set your price saves months of wasted time with buyers who can't get the deal funded.
So what's your number?
The honest answer is: you won't know until someone runs the actual calculation. That means pulling three years of tax returns and recasting the financials to show true SDE, applying the appropriate multiple range for your industry and risk profile, and reality-checking it against comparable sales.
That's what a proper valuation looks like — and it's where the conversation has to start before anything else happens.
Find out what your business is worth — confidentially.
A free consultation with You Promote, LLC takes 30 minutes and gives you a clear picture of your current valuation, what's driving it, and what could improve it. No pressure, no obligation.