What is my business worth?
A plain-English way to estimate what a small business is worth, the numbers buyers use, and why two similar businesses can sell for very different prices.
Most small businesses are priced the same way: a measure of yearly earnings, multiplied by a number that reflects how risky and how transferable those earnings are. Get those two inputs roughly right and you have a sensible starting estimate.
Step 1: find the right earnings number
Buyers do not use the profit on your tax return. They adjust it to show what the business really earns for an owner.
- Seller's discretionary earnings (SDE) is used for smaller, owner-operated businesses. It is profit before tax, plus interest, depreciation, the owner's pay and benefits, and one-off or personal expenses run through the business.
- EBITDA is used for larger businesses that run with a management team. It is profit before interest, tax, depreciation and amortization, after paying a market salary for the owner's role.
If you work in the business every day and it earns less than about $1 million a year for you, SDE is usually the right measure. See SDE vs EBITDA for a worked example.
Step 2: apply a multiple
The multiple is what the market pays for each dollar of earnings. BizBuySell, which reports on thousands of small business sales, shows an average sale price of 2.58 times SDE across all sectors for sales from Q3 2021 to Q2 2026 (source). The average differs by industry:
| Industry | Average multiple of SDE |
|---|---|
| Restaurants | 2.18 |
| Cleaning businesses | 2.25 |
| Landscaping | 2.49 |
| Plumbing | 2.61 |
| Dental practices | 2.75 |
| HVAC | 2.83 |
| Auto repair | 2.85 |
| Websites and ecommerce | 3.37 |
The full table is in business valuation multiples by industry.
A worked example
A plumbing business shows $180,000 of profit before tax. The owner takes a $90,000 salary, the accounts include $30,000 of depreciation and interest, and $10,000 of personal expenses went through the books.
- SDE = $180,000 + $90,000 + $30,000 + $10,000 = $310,000
- At the industry average of 2.61, that points to roughly $810,000
- A realistic range, allowing for how the business compares with its peers, might be $650,000 to $970,000
That range is wide on purpose. Where a business lands inside it depends on the drivers below.
Why your number will differ from the average
Two businesses with the same earnings can sell for very different prices. Buyers pay more when earnings look safe and easy to take over, and less when they look fragile.
- Customer concentration. If one customer is 30% of sales, a buyer sees a 30% risk.
- Owner dependence. If the business cannot run for a month without you, the buyer is buying a job.
- Earnings trend. Three years of steady growth is worth more than one good year.
- Quality of the books. Clean, timely accounts make earnings believable.
- Recurring revenue. Contracts and repeat customers make next year predictable.
- Market conditions. Interest rates and buyer demand in your industry move multiples up and down.
More on these in what lowers the value of a business and how to increase the value of your business.
What this estimate is not
A quick calculation like this is an indicative estimate. It is useful for planning and for tracking progress. It is not a formal valuation, and it will not stand up for tax, legal, lending or transaction purposes. See indicative estimate vs formal valuation for when you need the real thing.
Common questions
How often should I check what my business is worth?
Value changes whenever earnings, risk or market conditions change, which is most months. Owners who track it regularly can see which decisions added value and fix problems years before a sale, when there is still time.
Is revenue or profit more important for value?
Profit. Most small businesses are priced on earnings. Revenue multiples are a cross-check, and they mislead when margins are unusually high or low.
Does the value include cash, debt and property?
Usually not. Small business prices normally cover the operating business: equipment, inventory, goodwill and a normal level of working capital. Cash, debt and real estate are generally dealt with separately.