How Much Is My Business Worth? A Practical Guide for Owners

"How much is my business worth?" is the most common question I get from business owners. And most of the time, the number they have in their head is wrong — sometimes way too high, sometimes surprisingly too low.

Here's how to think about valuation the way buyers and brokers actually do.

The Two Main Valuation Methods

SDE Multiple (for businesses under ~$2M in earnings)

Seller's Discretionary Earnings (SDE) is net income plus owner's salary, benefits, and personal expenses run through the business. It represents the total financial benefit to a single owner-operator.

Most small businesses sell for 2x to 4x SDE, with the exact multiple depending on industry, growth, risk, and desirability.

Example: A landscaping company with $400K in SDE might sell for 2.5x to 3.5x, putting the value between $1M and $1.4M.

EBITDA Multiple (for larger businesses)

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the standard metric for businesses with $1M+ in earnings, where a management team is in place and the owner isn't doing all the work.

EBITDA multiples vary widely by industry and size:

• Small businesses ($1-3M EBITDA): 3x–5x
• Mid-market ($3-10M EBITDA): 5x–8x
• Upper mid-market ($10M+ EBITDA): 7x–12x+

The jump from small to mid-market multiples is significant. Crossing the $1M EBITDA threshold often unlocks an entirely different buyer pool — including private equity firms — which drives multiples higher.

What Drives Your Multiple Higher?

Not all businesses in the same industry get the same multiple. Here's what separates a 2.5x deal from a 4.5x deal:

Recurring revenue. Subscription models, service contracts, and maintenance agreements create predictable cash flow. Buyers pay more for predictability.

Growth trajectory. A business growing 15% year-over-year commands a higher multiple than one that's been flat. Growth signals opportunity. Flat signals risk.

Low owner dependence. If you can leave for a month and the business runs fine, your multiple goes up. If you leave for a week and things fall apart, your multiple goes down.

Diversified revenue. No single customer or contract should represent more than 10-15% of revenue. Customer concentration is one of the biggest risk factors buyers evaluate.

Strong team. Businesses with experienced management teams, documented processes, and low turnover are worth more. The team is often the most valuable asset.

Clean financials. Three years of clean, accurate financial statements — preferably reviewed or audited — give buyers confidence and reduce due diligence friction.

What Pulls Your Multiple Down?

• Declining revenue or shrinking margins
• Heavy owner dependence — the owner is the business
• Customer concentration — one client is 25%+ of revenue
• Messy books — personal expenses, cash transactions, inconsistent records
• Deferred maintenance — equipment, facilities, or technology that needs significant investment
• Pending litigation or regulatory issues
• High employee turnover or key-person risk

The Comparable Transaction Approach

Beyond multiples, experienced buyers and advisors also look at comparable transactions — what similar businesses actually sold for recently. This is like running real estate comps for your business.

Factors that matter in finding good comps:

• Same industry and business model
• Similar revenue and earnings range
• Same geographic region (California businesses often command a premium over rural markets)
• Similar growth profile and margin structure

Comp data isn't always publicly available for private businesses, which is one reason working with an experienced broker matters — we have access to deal databases that owners typically don't.

Free Online Calculators vs. Professional Valuations

Online valuation calculators (including my own) are useful for getting a rough ballpark. They apply industry-average multiples to your earnings and give you a range.

But they can't account for the nuances that actually determine your sale price:

• Quality of your revenue mix
• Strength of your team
• Local market dynamics
• Current buyer demand for your type of business
• Deal structure preferences

A professional valuation — sometimes called a broker's opinion of value (BOV) — considers all of these factors. It's the difference between a Zillow estimate and an actual appraisal.

What to Do Next

If you're curious about your business's value, here's a practical next step: gather your last three years of tax returns, a current P&L, and a balance sheet. That's enough for an experienced broker to give you a meaningful valuation range.

I provide free, confidential business valuations for owners in California who are considering a sale in the next 1-3 years. No pressure, no obligation — just honest numbers so you can make informed decisions. Book a call here.