Business Valuation Calculator (SDE Method)
Estimate the market value of your small-to-medium business using the Seller's Discretionary Earnings (SDE) multiple method.
Estimated Valuation Summary
How This Business Valuation Calculator Works
Valuing a small business is more of an art than a science, but the most common industry standard for businesses with less than $1 million in earnings is the Seller's Discretionary Earnings (SDE) method. This calculator helps you normalize your earnings and apply an industry-appropriate multiple to find a fair asking price.
Key Valuation Components
1. Seller's Discretionary Earnings (SDE)
SDE is the total financial benefit a single full-time owner-operator derives from the business. It is calculated by taking your net profit and "adding back" expenses that a new owner might not have, such as your own salary, personal travel, one-time legal fees, or non-cash expenses like depreciation.
2. The Industry Multiple
Most small businesses sell for between 2.0x and 4.0x their SDE. The specific multiple depends on your industry, your growth rate, and how much the business depends on you personally. A business that runs itself without the owner's daily involvement usually commands a much higher multiple.
Example Calculation
Let's look at a realistic example of a local landscaping company:
- Annual Revenue: $600,000
- COGS & Expenses: $450,000
- Owner's Salary: $70,000
- Net Profit: $80,000
- SDE: $80,000 (Profit) + $70,000 (Salary) = $150,000
- Multiple: 2.5x
- Inventory: $30,000
- Total Value: ($150,000 * 2.5) + $30,000 = $405,000
Factors That Increase Your Business Value
If you want to move from a 2.0x multiple to a 3.5x multiple, focus on these "value drivers":
- Recurring Revenue: Contracts and subscriptions are worth more than one-time sales.
- Clean Financials: Accurate, tax-verified records reduce buyer risk.
- Transferability: If the business can't run without you, it's worth significantly less.
- Customer Diversity: No single customer should represent more than 15% of your total revenue.