Business Valuation
How small- and mid-market businesses are actually valued — what brokers, buyers, and lenders use to put a number on your company. Written from the perspective of a working broker, not a textbook.
Most small businesses are valued by applying an industry multiple (1.5x–6x) to Seller's Discretionary Earnings — net income plus owner salary, owner perks, interest, taxes, depreciation, and one-time expenses. Mid-market businesses (over $1M earnings) shift to EBITDA-based multiples of 3x–8x. Multiples are driven by industry, growth, customer concentration, owner dependence, and recurring revenue. The single biggest lever owners control is reducing owner-dependence in the 12 months before listing.
What you'll learn here
Valuation is the part of selling a business owners get most wrong — usually because they're comparing themselves to public-market headlines or the wrong industry's multiples. The articles below cover the foundations every owner needs before entering a sale conversation: what SDE actually is, how multiples vary by industry, when EBITDA replaces SDE, what add-backs you can defend, and the practical levers that move your number in the months before going to market.
These pages pair with our complete guide to selling a business — valuation is step 2 of that process, but it deserves its own deep dive.
The five things every owner should understand
- 01Earnings Basics
What Is SDE? Seller's Discretionary Earnings Explained
SDE is the earnings metric used to value most small businesses. Here's exactly how it's calculated, what counts, what doesn't, and why your tax-return net income is the wrong number.
Read this guide → - 02Industry Benchmarks
Business Valuation Multiples by Industry: 2026 Benchmarks
What multiple of SDE or EBITDA businesses actually sell for, by industry — plus the factors that move you to the high or low end of the range.
Read this guide → - 03Earnings Methodology
EBITDA vs SDE: Which One Applies to Your Business Sale?
EBITDA and SDE are not interchangeable — using the wrong one mis-prices your business by 40–80%. Here's exactly when each applies and how to translate between them.
Read this guide → - 04Adjustments
Add-Backs in Business Valuation: What's Legitimate, What's Not
Every defensible add-back puts dollar-for-dollar value on top of your sale price — multiplied by the multiple. Here's exactly what buyers will accept, what they'll reject, and what kills deals.
Read this guide → - 05Value Levers
How to Increase Your Business Valuation Before Selling
The 12–24 months before listing are when valuation is made or lost. Six concrete levers that move your multiple, not just your earnings — and which to prioritize.
Read this guide →
Want a real number, not a range?
Reading about multiples is useful. Knowing your specific number is more useful. Our free, confidential valuation estimate applies the same SDE-multiple method described in these articles to your actual financials — takes 3 minutes, no obligation.
Get My Free Valuation →Frequently asked questions
How is a small business valued?
Most small businesses are valued by applying an industry-specific multiple to Seller's Discretionary Earnings (SDE) — typically 1.5x to 6x. Mid-market businesses ($1M+ in earnings) often shift to EBITDA-based multiples of 3x to 8x. The multiple is driven by industry, growth trajectory, customer concentration, owner dependence, and recurring revenue percentage.
What is SDE in business valuation?
Seller's Discretionary Earnings (SDE) is the total financial benefit available to a single working owner — net income plus owner's salary, owner perks, interest, taxes, depreciation, amortization, and one-time non-recurring expenses. It's the standard earnings metric for businesses under $1M in profit.
What is the difference between SDE and EBITDA?
SDE includes the owner's salary as part of the earnings base; EBITDA does not. SDE is used for owner-operated businesses (typically under $1M earnings) where one full-time owner is essential. EBITDA applies to businesses run by professional management. For larger or PE-targeted businesses, EBITDA-based valuation is standard.
What are add-backs in business valuation?
Add-backs are non-recurring, discretionary, or personal expenses removed from reported expenses to arrive at true earning power. Common add-backs: owner salary above market, family member compensation, personal vehicles, one-time legal fees. Every add-back must be defensible with documentation — buyers scrutinize them heavily.
John Matsis
John Matsis is a business broker and principal at HedgeStone Business Advisors, a national brokerage network with 300+ agents serving private sellers, family offices, and private equity firms. He has hands-on experience building, acquiring, exiting, and investing in businesses and real estate across a wide range of industries.