Example 1: Service business, $200K SDE, growing 8% per year
- Industry baseline multiple: 2.5x
- Growth adjustment (+0.3 turn): 2.8x
- Owner dependency: low (manager + documented procedures): no discount
- Estimated value: $200,000 × 2.8 = $560,000
Estimate a small business valuation range using SDE multiples by industry. Adjust for growth trend and owner dependency to see how market factors move the number.
Using general small business median range
Net income + owner salary + add-backs (depreciation, one-time expenses)
Used as a floor - asset-heavy businesses trade closer to asset value when SDE is low
High = business relies heavily on the current owner. Buyers discount for key-person risk.
Conservative
$180K
Mid
$270K
Optimistic
$360K
Educational estimate only. Formal valuations require a qualified appraiser reviewing the actual financials.
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For most owner-operated small businesses, the SDE multiple method is the dominant valuation approach used by business brokers, SBA lenders, and acquisition buyers. The formula is straightforward; the inputs require care.
SDE = net income + owner compensation + owner perks + depreciation + amortization + interest. Most brokers normalize for one-time expenses (lawsuit, equipment write-off) and add back the cost of replacing the owner with a manager if the buyer plans to operate absentee.
Industry multiple = a published or comp-derived figure reflecting how the market prices businesses in that category. Multiples below capture industry baselines; specific deals trade up or down based on the adjustments above.
Three real-world valuation scenarios using SDE multiples. Run your own numbers in the calculator above.
Multiply seller discretionary earnings (SDE) by an industry-appropriate multiple. SDE is net income plus owner compensation, owner perks, depreciation, amortization, and interest. Industry multiples typically range from 1.5x for owner-dependent service businesses to 4x or higher for established B2B businesses with recurring revenue. The formula is value = SDE × industry multiple, with adjustments for growth trend, customer concentration, and owner dependency.
SDE (seller discretionary earnings) adds the owner's salary back to net income because the buyer will replace the owner. EBITDA (earnings before interest, taxes, depreciation, and amortization) does not. For owner-operated small businesses below roughly $1 million in earnings, SDE is the standard cash-flow figure. Above that, EBITDA is more common because the business typically has separate management. Using SDE multiples on businesses that should be valued on EBITDA produces inflated valuations.
Restaurants and bars: 1.5x to 2.5x. Service businesses (cleaning, landscaping, repair): 2.0x to 3.0x. Professional services (consulting, accounting, IT): 2.5x to 4.0x. E-commerce: 2.5x to 4.5x. SaaS and recurring-revenue B2B: 4x and up. These are general ranges; specific multiples vary by business size, geography, growth trajectory, and how owner-dependent the operation is.
Buyers and lenders pay more for growing businesses and discount declining ones. A business with 10 percent year-over-year revenue growth in each of the last three years often commands a multiple 0.5 to 1.0 turn higher than a flat business in the same industry. A business with declining revenue typically commands a multiple 0.5 to 1.0 turn lower. The calculator applies a growth-trend adjustment to the base industry multiple.
A business that relies heavily on the current owner's personal relationships, sales effort, or technical expertise carries transition risk. Buyers and lenders both discount this risk. Highly owner-dependent businesses can lose 10 to 30 percent of value compared to systematized businesses with documented procedures, a stable management team, and customer relationships that transfer to a new owner. The calculator applies an owner-dependency adjustment.
No. The calculator produces an educational estimate. A formal asking price should reflect a professional business appraisal that includes asset condition, lease terms, customer concentration analysis, working capital normalization, and a market comp study. Use this calculator to pressure-test whether an asking price you have been given is in a defensible range, not as the basis for a transaction price.