Valuation is where most small-business deals are won or lost. Buyers and sellers rarely start with the same number, so it helps to understand the three standard approaches.
1. Seller’s discretionary earnings (SDE) multiple
SDE adds the owner’s salary, one-time expenses and non-cash items back to net profit. Small owner-operated businesses commonly sell for a multiple of SDE, with the multiple depending on industry, growth and how dependent the business is on the owner.
2. Asset-based value
Add up what the business owns (equipment, inventory, property) and subtract liabilities. This sets a floor, and it matters most for asset-heavy or struggling businesses.
3. Market comparables
Look at what similar businesses in your industry and region have sold for. Brokers and deal databases are the usual sources.
What moves the number
- Recurring revenue and customer concentration
- Clean, documented financials
- Owner dependence
- Growth trend over the last three years
Get a professional valuation before you negotiate. This article is general education, not advice.