Estimate a small business's value using the earnings-multiple method, a common approach for privately held business sales.
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Estimated Value = (Annual Earnings × Industry Multiple) + Add-Back Assets. Annual earnings is typically Seller's Discretionary Earnings (SDE) for small businesses or EBITDA for larger ones. The multiple reflects what similar businesses in your industry typically sell for, as a multiple of that earnings figure.
For example, 100,000 in annual earnings with a 3x multiple and 20,000 in add-back assets (like excess cash not needed to run the business) gives an estimated value of 320,000.
Industry multiples for small businesses commonly range from about 2x to 4x SDE, though they can be higher for businesses with recurring revenue, strong growth, or low owner dependency, and lower for businesses with concentrated customer risk or heavy owner involvement. Research recent sales of comparable businesses in your industry for a realistic multiple.
No. This gives a quick, simplified estimate using one common method. A formal valuation from a business appraiser or broker considers many additional factors, market conditions, deal structure, and due diligence findings, and should be used for actual transactions.
SDE (Seller's Discretionary Earnings) adds back the owner's salary and personal benefits on top of EBITDA, and is typically used for smaller, owner-operated businesses. EBITDA is more common for larger businesses with professional management already in place.
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