Business Valuation Calculator (SDE Multiple Method)
Estimate the market value of your small business based on Seller's Discretionary Earnings.
1.5x (High Risk/Micro)
2.0x (Average Service/Retail)
2.5x (Stable/Established)
3.0x (Strong Growth/Systems)
3.5x (High Margin/Proprietary)
4.0x (Low Risk/Market Leader)
Total Add-backs:
$0
Total SDE (Earnings):
$0
Valuation Multiple:
2.0x
Estimated Business Value:
$0
How to Value a Small Business
Valuing a small business is often more of an art than a science. For most main-street businesses (those with revenue under $5 million), the most common method is the Seller's Discretionary Earnings (SDE) Multiple Method. This approach determines how much cash a single owner-operator can expect to take out of the business annually.
What is Seller's Discretionary Earnings (SDE)?
SDE is a calculation used to show the true earning power of a business. Because small business owners often try to minimize taxable income through legal expenses, we must "add back" certain items to the net profit to see the actual benefit available to a new owner.
Common Add-backs include:
- Owner's Salary: Since a new owner will replace the old one, their compensation is part of the profit.
- Depreciation: A non-cash expense that doesn't affect actual cash flow.
- Interest: Debts are usually cleared at the time of sale, so interest expenses are added back.
- One-time Expenses: Non-recurring costs like a website redesign, legal fees for a specific dispute, or a one-time equipment repair.
Realistic Example:
A local coffee shop shows a Net Profit of $50,000. The owner takes a Salary of $60,000. They have $10,000 in Depreciation and paid $5,000 in Interest. They also had a one-time Roof Repair for $5,000.
SDE Calculation: $50k + $60k + $10k + $5k + $5k = $130,000 Total SDE.
If similar coffee shops sell for a 2.5x multiple, the business value would be: $130,000 × 2.5 = $325,000.
A local coffee shop shows a Net Profit of $50,000. The owner takes a Salary of $60,000. They have $10,000 in Depreciation and paid $5,000 in Interest. They also had a one-time Roof Repair for $5,000.
SDE Calculation: $50k + $60k + $10k + $5k + $5k = $130,000 Total SDE.
If similar coffee shops sell for a 2.5x multiple, the business value would be: $130,000 × 2.5 = $325,000.
Understanding Multiples
The multiple is a factor of risk and growth potential. A business with documented processes, a loyal customer base, and high barriers to entry will command a higher multiple (3x+). A business heavily reliant on the specific skills of the current owner or located in a declining industry may see a lower multiple (1.5x – 2x).