What Is My Business Worth? A Step-by-Step Valuation Guide for Small Business Owners

“What do you think your business is worth?”

It’s one of the most common questions I ask people, and one of the most misunderstood. Most small business owners either shoot too high because they’re thinking emotionally, or they lowball themselves because they don’t realize what they’ve actually built.

Here’s the deal: You don’t need an MBA or a wall street background to figure out what your business might be worth. You just need to understand how buyers think, what they’re really buying, and how to connect the dots between the money your business makes and the value someone else sees in it.

I wrote this for regular business owners, specifically, the kind who are juggling inventory, payroll, and customer drama all at once. Whether you’re thinking about selling soon, just curious where you stand, or trying to plan your next move, this will give you a clear no nonsense way to get a ballpark idea of what your business could be worth.

You’ve built something real. Let’s talk about what it might be worth to someone else.

What Buyers Actually Buy

First things first: nobody’s buying your blood, sweat, and tears, as annoying as it sounds

Buyers don’t care how many eighty hour weeks you’ve worked or how much you sacrificed to build the business. They’re not buying your “hustle.” They’re buying one thing, which is…. your business’s future cash flow.

That’s it. That’s the game.

A business, at its core, is just a machine that turns time, labor, and resources into profit. If it’s a strong machine, meaning it produces consistent income, doesn’t fall apart when you step away, and has systems in place, then it’s valuable. If it’s messy, unpredictable, or entirely dependent on you to keep it alive, it’s a much harder sell.

Here is a way to think about it: Buyers don’t buy what you’ve done. They buy what they think they can earn.

And they’re going to measure that with numbers. It will mostly be your profits, how reliable those profits are, and how risky it feels to take over. That’s why understanding the difference between revenue and profit is so important.

Just because your business does $1 million in sales doesn’t mean it’s worth anything close to $1 million. If you keep $150,000 of that at the end of the day, and you’re running everything yourself, then that $150K (plus how transferable it is) is what buyers are actually buying.

So before we get into formulas, multiples, and all that jazz, lock this in: The value of your business is rooted in how much profit it can deliver to someone else without them having to become you to get it.

If you can wrap your head around that idea, the rest of the valuation process becomes a whole lot easier.

Valuation Rule #1: Your Business Is Worth What Someone is Willing to Pay

In short: your business isn’t worth what you think it’s worth. It’s worth what someone else is actually willing to write a check for.

That’s the first and most important rule in business valuation. Everything else is theory until a buyer shows up and puts money on the table.

You can build spreadsheets, come up with your “dream number,” or ask your cousin’s accountant for an opinion, but at the end of the day, value is a market-driven thing. It’s not about how much effort you’ve poured in, how many years you’ve been open, or what you want to get. It’s about risk and return.

So let’s talk about how buyers see risk.

Risk = Discount

If your business depends entirely on you to run smoothly, that’s risky. If your books are a mess and you can’t explain where the money goes, that’s risky. If 80% of your sales come from one customer, you guessed it, it’s risky.

The more risk a buyer sees, the lower they’re going to value the business. It’s like buying a rental property with a leaky roof and unreliable tenants. You will still buy it, but not at full price.

On the other hand, if you’ve got:

• Clean books
• Steady cash flow
• A team that knows what they’re doing
• And systems that don’t require your daily involvement

…then you’re in a much better spot. Buyers see that and say, “I can step into this, make money, and sleep at night.” That’s where value starts to climb.

Bottom line?

Valuation is not a science in an of itself (though there is some science to it). It’s a negotiation, grounded in logic and shaped by the market. It is driven by what someone else sees in the opportunity.

So when you think about what your business is worth, don’t just ask what you want. Ask yourself:  “Would I buy this business at that number?” or “Would I feel good making that investment?”

If the honest answer is “probably not,” then it’s time to rethink what your business is actually worth.

3 Simple Valuation Methods (And When to Use Each)

Now that we’ve established that buyers are paying for future profit, let’s talk about how people figure out what that profit is worth.

There are a hundred ways to overcomplicate valuation, but for small business owners, you only need to understand three core methods. These are the ones most buyers, brokers, and lenders actually use in the real world.

Let’s break them down in plain English.

1. SDE Method (Seller’s Discretionary Earnings)

This is the most common method for valuing owner-operated small businesses (think main street businesses where the owner is involved day-to-day).

SDE is basically:

• Net income + your salary + any perks you run through the business + non-essential expenses + one-time costs

In other words, it’s the total amount of cash the business throws off for you as the owner. This includes what you pay yourself and all the “owner perks” (car lease, cell phone, those meals that were technically client dinners).

Why it matters:
Buyers want to know what they’ll get out of the business if they step in and operate it the way you do. This method tells them that number. Then they apply a multiple (more on that in the next section) to get the business value.

When to use it:

• You’re actively involved in the business
• You’re making less than ~$1 million in profit
• It’s a main street or lower middle market business (think $100K–$5M revenue range)

2. EBITDA Multiple

Now we’re moving upstream. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, which is basically a cleaner measure of operating profit before financing and accounting noise.

This method is used for more established businesses where the owner is not essential to day-to-day operations.

Why it matters: It gives buyers a sense of how profitable the business is based purely on operations, without being distorted by how you personally run the business.

When to use it:

• You have management in place
• You’re doing $1M+ in EBITDA
• You’re attracting private equity, strategic buyers, or institutional lenders

(If that’s not you, don’t worry, SDE is still your go-to.)

3. Revenue Multiple

This one gets misused all the time. People hear that tech startups are selling for “10x revenue” and assume they can apply that to their HVAC company or boutique bakery.

Here’s the truth:
Revenue multiples are only used when:

• There’s little to no profit yet
• The business has huge growth potential
• There’s recurring, predictable revenue (like SaaS, subscription boxes, or service retainers)

If your business makes $1 million in revenue and only $50,000 in profit, a buyer isn’t paying a multiple of your sales, they’re paying based on the $50K. Unless you’re a fast-scaling tech business with a killer story and sticky revenue, this method usually won’t apply to you. 

When it actually applies:

• Subscription-based businesses
• E-commerce with strong monthly customer retention
• High growth companies with investor interest

Quick Recap:

So what’s the bottom line then? If you’re reading this and running your business day to day, start with SDE. It’s the most accurate and relatable method for small business owners, and it’s what most buyers, brokers, and lenders are going to use anyway.

What Drives the Multiple? (The Real Factors Behind the Math)

Alright, now that you’ve figured out how much profit your business throws off there’s one more piece of the puzzle to understand:

The multiple.
This is the number you multiply your profit by to get a rough valuation. 

For example, if your SDE is $200,000 and someone’s willing to pay a 2.5x multiple, that puts your business around $500,000 in value.

But here’s the question every owner asks: “How do I know what multiple applies to my business?”

Good question. 

And the answer is: It depends on how risky or attractive your business looks to a buyer. That’s it. The more transferable, predictable, and scalable your business is, the higher your multiple.

Let’s break down the major factors that drive that multiple up or down. 

1. Industry Type

Some industries are just seen as riskier than others. Restaurants, for example, often sell at lower multiples (think 1.5x to 2.5x SDE) because of high turnover, slim margins, and constant operational headaches. Meanwhile, boring but stable industries like HVAC or pest control can see multiples in the 3x to 4x range, especially with recurring contracts.

2. Owner Dependence

If the business only works because you are in it every day doing the selling, managing, pumping out the books, fixing all of the messes, then it’s not really a business. It’s a job someone would be buying, not a company. That’ll tank your multiple. 

Businesses with solid teams, documented systems, and minimal reliance on the owner command higher multiples.

3. Financial Quality

Do your books make sense? Are they clean? Can someone verify what you’re claiming? Or do you have a spreadsheet that sort of tracks income and a shoebox full of receipts?

Buyers will pay more when they can trust the numbers and the story those numbers tell.

4. Revenue Type: Recurring vs. One-Off

A business with monthly recurring revenue also known as MRR (like a service contract model, subscription, or managed service) is worth a lot more than one relying on one time sales or constant chasing.

Think of it this way: Predictable income = lower risk = higher multiple

5. Customer Concentration

If 70% of your revenue comes from one or two customers, that’s a red flag. Lose them, and the business could collapse. Diversified customer bases give buyers more confidence that the cash flow will keep coming.

6. Growth Potential

If your business has been flat for five years, expect a lower multiple. But if you’ve got clear momentum or untapped opportunities that a buyer can realistically step into, multiples start to stretch higher.

Think about it this way:

• Can it be franchised?
• Is there room for regional/national expansion?
• Can services be bundled or sold as subscriptions?

Growth stories push values up a bunch, but they need to be credible, not just “if someone did marketing, this thing would explode.” (can’t tell you how many sellers use this line)

Just a Quick Thought:

The multiple is just the buyer’s way of saying how safe or how dicey they think your cash flow is.

The more you can remove risk and build systems that make the business operate like a machine, the more valuable it becomes.

Real World Ranges: What Most Small Businesses Sell For

This is the part you probably came here for. You’ve heard about “multiples” and maybe even done some back-of-the-napkin math. But what do real small businesses actually sell for out in the wild?

Let’s get into the ranges and make them real for you.

For Most Small Businesses, the Multiple Falls Between 2x and 3x SDE

That means if your business is throwing off $150,000 in SDE (after addbacks), you’re probably looking at a value between $300K and $450K. This only sticks if the business is healthy, documented, and transferable.

Now, could you get more than 3x? Sure. But usually, that requires:

• Recurring revenue
• Management in place
• Killer margins
• Growth potential that’s already proven
• Or… a really hot industry with buyer competition

And could you get less than 2x? Unfortunately, yes.
If the business depends entirely on you, has sloppy books, or is in a declining industry, expect the multiple to reflect that.

Let’s bring this down to street-level with a few examples:

Example 1: Restaurant

• Annual SDE: $120,000
• Risk: High (labor, competition, margins, owner-heavy)
• Likely Multiple: 1.5x to 3x
• Ballpark Value: $180K to $360K

Unless it’s absentee-run or part of a strong brand, restaurants often struggle to push beyond a 3x multiple.

Example 2: HVAC Company

• Annual SDE: $250,000
• Risk: Moderate (strong demand, usually owner-operator)
• Recurring service contracts? Big boost.
• Likely Multiple: 2.5x to 3.5x
• Ballpark Value: $625K to $875K

Buyers like these. It’s a blue-collar business with steady need and often a strong reputation locally.

Example 3: E-Commerce Store

• Annual SDE: $175,000
• Risk: Depends on marketing dependence, fulfillment, and customer concentration
• High-margin recurring orders? That helps.
• Likely Multiple: 2.5x to 3x (sometimes higher with automation)
• Ballpark Value: $437K to $525K

Amazon dependence or no email list? Might drop below 2.5x fast.

Example 4: Funeral Home

• Annual SDE: $300,000
• Risk: Low demand volatility, high community loyalty
• Often family-run with strong reputation
• Likely Multiple: 3x to 4x
• Ballpark Value: $900K to $1.2M

Predictable, steady business. Hard to disrupt. Buyers like them, especially if the owner can step away.

It’s not just about how much your business makes, it is about how reliable, transferable, and systematized that money is. If you’re in that 2x to 3x range, you’re in the zone. It doesn’t mean you can’t improve it. But it means you’re aligned with what real buyers in the small business market expect.

Bonus Valuation: Asset-Based or Liquidation

OK so now let’s talk about the fallback valuation method that nobody really wants to hear about… but some folks need to.

Not every business can be valued off earnings. Sometimes there isn’t any profit. Or maybe the owner is running it at a loss, but the company still has valuable assets like trucks, equipment, inventory, real estate.

That’s when we pivot to what’s called asset-based valuation, or in some cases, liquidation value. 

Let me break it down:

When Asset-Based Valuation Comes Into Play

If your business:

• Isn’t consistently profitable
• Is being shut down or wound up
• Has no real cash flow but owns valuable stuff

…then buyers aren’t paying for future earnings. They’re paying for the stuff they can sell, use, or liquidate.

This is common with:

• Construction or landscaping companies that own heavy equipment
• Retail shops with large inventory
• Transportation companies with fleets
• Failing businesses with real estate or resale value in play

In these cases, buyers will come in, tally up the value of the hard assets (at fair market resale value, not what you paid), subtract liabilities or debts, and that’s roughly what the business is worth.

No earnings? No multiple. Just net asset value.

Liquidation Value (The Fire Sale Reality)

This is the harshest version. If you had to close your doors tomorrow and sell everything at auction, what would it all fetch?

It’s not pretty, but it’s real. If your business is hemorrhaging cash, has no buyers, and the only remaining value is in equipment or inventory. Then you’re not selling a business, you’re selling a yard sale with a logo.

And listen… this doesn’t mean you’re a failure. It just means the business as a going concern isn’t strong enough to stand on its own without you or without a major overhaul.

Here is the good news. If you catch it early enough, you can usually avoid this outcome. Start cleaning your books, systematizing operations, and shifting from asset-heavy chaos to profit driven order.

But if your business is struggling, and someone offers you an asset-based deal, don’t take it personally. Just ask yourself: is this more than I’d make trying to sell it off myself?

Sometimes the answer is yes and that deal is your best exit.

1. Confusing Revenue With Value

Just because your business made $1.2 million in revenue last year doesn’t mean it’s worth $1.2 million. That’s gross income, not profit. What matters most is what you keep your SDE or EBITDA. That’s what buyers are paying for.

If your bottom line is thin, your valuation is going to reflect that, no matter how many zeros are in your top-line sales.

2. Using Emotion Instead of Math

“I’ve worked 20 years to build this business.”
“I missed my kid’s baseball games for this.”
“I put everything into it.”

Totally valid feelings that many have, but buyers don’t pay for your effort. They pay for what the business will do for them. You can’t price in burnout, late nights, or personal sacrifice. The market doesn’t care how hard it was to build. only how strong and predictable it is now.

3. Overlooking Owner Addbacks

If you’re running personal expenses through the business (and let’s be honest, most owners are), you’ve got to identify and document those addbacks clearly. That includes:

• Your salary
• Car expenses
• Health insurance
• Travel
• Meals
• One-off expenses (like that equipment you replaced last year)

If you don’t clean those up and present them correctly, your business might look less profitable than it actually is, and that will kill your valuation.

4. Thinking Your Buyer Will “See the Potential”

I hear this one all the time.. “If someone just came in and did marketing, this thing could double in size.”

Here is the problem: buyers just don’t pay for maybe. They pay for what exists today. If your business has untapped potential, great. But unless that upside is clearly documented, repeatable, and ready to scale, don’t expect to get paid for it upfront.

In most cases, the buyer will see that potential, and expect to profit from it after they own the business. They don’t want to pay extra for it now.

5. Ignoring Their Financials Until It’s Too Late

Your books don’t have to be perfect, but they do need to be clean, accurate, and up to date. If you’re behind on bookkeeping, mixing personal and business accounts, or don’t have a clear picture of your margins, no buyer is going to take you seriously.

Clean financials = confidence = stronger offers.

6. Waiting Until You’re Burnt Out to Sell

A tired owner makes for a tired business. And buyers can see it from a mile away.

If you wait until you’re out of energy, sales have dipped, and your team is running on fumes, you’ve already lost value. The best time to prepare your business for sale is before you need to. When you’re still energized, invested, and able to help someone see the real story.

Truth is, most of these mistakes are totally avoidable.  But you’ve got to take off the emotional blinders and treat your business like what it is: a financial asset.

And if you do that right, the payoff can be life-changing.

How to Get a Ballpark Value Today (DIY Steps)

Alright, let’s say you’re not ready to pay for a formal valuation, and you’re not trying to impress private equity either. You just want a realistic idea of what your business might be worth so you can make smart decisions.

Good news: You can get close enough to have an intelligent conversation with a buyer, broker, or lender. You just need to do a little math and be brutally honest about the shape your business is in.

Here’s how to do it in five steps:

Step 1: Pull Your Net Income

Grab your P&L (profit & loss) statement from the last full year. Look at the bottom. That’s your net income, the raw number before we adjust anything.

If you don’t have clean financials yet, stop here. Your first step isn’t valuation, it’s bookkeeping.

Step 2: Add Back Owner Perks

Now it’s time to calculate your Seller’s Discretionary Earnings (SDE). That means you take your net income and add back anything that a new owner wouldn’t have to pay for, like:

• Your salary
• Health insurance premiums
• Travel or meals
• Vehicle expenses
• One-time legal or repair costs
• Non-cash expenses like depreciation

Be honest. If you bought a new truck and wrote it off, but it wasn’t critical to the business, add it back. The goal is to show the true cash flow to the owner.

Step 3: Arrive at Your SDE

Once you’ve added all that up, you should have a clear number. This is the amount of cash flow the business produces for the owner each year.

That’s your SDE. That’s the number buyers are going to care about most.

Step 4: Apply a Realistic Multiple

Now take that SDE and multiply it by something between 2x and 3x. That’s the most common range for main street businesses.

Be conservative unless you know for a fact that you’ve got:

• Recurring revenue
• Low owner involvement
• Clean books
• A diversified customer base
• Consistent growth

If not? Stay in the 2x–2.5x range.

Example:

• SDE: $175,000
• Reasonable multiple: 2.5x
• Ballpark value: $437,500

That’s what your business might sell for in today’s market.

Step 5: Reality Check Against the Market

If you know other businesses in your industry that have sold recently, check out what they sold for. You can sometimes find listings or comps on sites like:

• BizBuySell – https://www.bizbuysell.com/
• DealStream – https://dealstream.com/dashboard/buyer
• Empire Flippers (for online businesses) – https://empireflippers.com/
• Or ask a business broker you trust (here are a few I have worked with)
  • Transworld – https://www.tworld.com/
  • Murphy Business Brokers – 

Does your estimate land in the same ballpark? If yes, you’re probably close. If you’re way off, it’s time to recheck your assumptions.

One More Thing:

You don’t need a perfect number… you need a defendable one.

A solid, realistic ballpark will help you negotiate, plan your next move, and avoid being the owner with champagne expectations and soda water numbers.

When to Bring in a Pro (And What to Expect)

Let’s say you’ve done the math. You’ve calculated your SDE, applied a realistic multiple, and sanity-checked it against the market. Now you’re thinking:

“Okay, this is helpful… but how do I know for sure?”

That’s when it makes sense to bring in a professional.

But let’s be clear: not all pros are created equal, and not every business needs a $10,000 certified valuation. Depending on your goals (selling, buying, estate planning, raising capital) there are different people who can help, and different levels of depth you’ll need.

Here’s how to know who to call, and why.

1. Business Brokers

If you’re thinking about selling in the next 6 to 12 months, a broker can help you value your business and go to market with it. Most will give you a rough valuation for free or as part of their listing process.

What to expect:

• They’ll use market comps + SDE
• They know what buyers are actually paying in your industry
• They’ll factor in risk, growth, and deal structure
• They’ll also help you package the business to look right to a buyer

Not all brokers are equal so look for someone who specializes in your size and sector.

2. Accountants/CPAs

If you want to understand how your books reflect your business value, or you’re prepping for a sale down the line, an accountant can help clean things up, identify addbacks, and even model future earnings. Not all understand what the current market looks like so take any opinions you get her with a grain of salt. 

Here is what you can expect:

• More numbers, less market context
• Great if you need help clarifying SDE or cleaning financials
• Not usually helpful for negotiating the value

Use them as a tune-up, not a mechanic.

3. Valuation Experts / Certified Appraisers

If you’re dealing with legal matters (divorce, partnership disputes, ESOPs, estate planning, etc.), you may need a formal certified valuation which is usually from a CVA (Certified Valuation Analyst) or CBA (Certified Business Appraiser).

What to expect:

• Deep dive into financials, industry risk, economic trends
• Formal report, sometimes 30 to 60 pages
• Pricing usually starts around $4K and can go way higher
• Required for IRS reporting, legal settlements, and complex exits

Only go this route if the situation requires it. Most main street business owners don’t need it unless the law, the IRS, or a lawsuit says so. If you buyer is working with a lender, like me, the lender will order their own valuation, regardless as to whether you have already ordered one or not. So don’t immediately waste your money. 

When to Make the Call

Bring in a pro when:

• You’re actively prepping to sell
• You’re negotiating a buyout or exit
• There’s conflict around ownership value
• You need to prove value to investors, courts, or partners
• You’re willing to make real operational changes and want expert input

And if you’re just curious or in early planning mode? Start with a broker or a lender who works with small business acquisitions. The right one can give you more honest insight than a 60 page valuation that sits in a drawer.

Here’s the rule: If there’s serious money on the table, or someone else is going to challenge your number, you don’t want to be the only one without a pro in your corner.

Final Thoughts

In the end, here is what I want you to walk away with: You don’t need to be a valuation expert to understand what your business might be worth. You just need to think like a buyer.

If you’ve got clean financials, consistent profit, a business that doesn’t fall apart when you take a vacation, and a decent handle on what similar businesses go for, then you’re already ahead of most.

The goal here isn’t to chase some inflated, fantasy number you heard on a podcast. The goal is to understand your business like an asset, because that’s exactly what it is.

• An asset that can be sold.
• An asset that can be borrowed against.
• An asset that can build wealth beyond just your income.

Too many small business owners work for decades and never stop to ask: “What am I actually building here?” You don’t want to wake up one day with a burned-out business, no exit plan, and nothing to show for all those years of grind.

So do yourself a favo and start tracking your real cash flow. Clean up your financials. Systematize your operations. Document what makes your business run, and in the end, know your number.

Even if you’re not ready to sell now, understanding your valuation gives you leverage. It changes how you grow, how you reinvest, and how you lead. Because you’re not just building a business, you’re building a legacy.