How to Value a Small Business: What Retiring Owners Need to Know

If you're a retiring owner preparing to sell, the first question on your mind is probably "What's my business worth?" Understanding valuation before you go to market helps you price realistically and recognize a fair offer when it comes.

The Most Common Method: SDE Multiples

For most small businesses, valuation starts with Seller's Discretionary Earnings (SDE) — essentially your net profit plus the owner's salary, benefits, and any one-time or personal expenses run through the business. Buyers then apply a multiple to this number.

Multiples typically range from 2x to 4x SDE for small businesses, depending on industry, growth, customer concentration, and how dependent the business is on you personally.

Larger Businesses Use EBITDA

Once a business reaches a few million in revenue, buyers often shift to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples instead of SDE.

What Drives Your Multiple Up

• Recurring revenue and long-term contracts
• Low customer concentration — no single client dominating
• Documented systems so the business runs without you
• Consistent or growing profits over several years
• A capable team that will stay after the sale

What Drives It Down

• Heavy dependence on the owner
• Declining revenue
• Customer concentration
• Messy or unverifiable financials

Get a Professional Valuation

While these rules of thumb help you set expectations, a professional business valuation gives you a defensible number to take to market. It also reassures buyers and their lenders.

The Bottom Line

Knowing your value before you list prevents both leaving money on the table and scaring off buyers with an unrealistic price. Clean financials and reduced owner-dependence are the two biggest levers you can pull before selling.

Thinking about selling? Learn how to list your business →

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