Business Valuation Calculator
Estimate the market value of your business using the Seller's Discretionary Earnings (SDE) Multiplier Method.
How Business Valuation Works
Determining the value of a small to medium-sized business is often done through the Earnings Multiple Method. This approach looks at the financial benefit an owner-operator receives and applies a multiplier based on industry standards, risk, and growth potential.
What is SDE (Seller's Discretionary Earnings)?
SDE is the total financial benefit a single owner-operator derives from the business. It is calculated by taking the net profit and "adding back" certain expenses like:
- The owner's salary
- Interest expenses on loans
- Depreciation and amortization (non-cash expenses)
- One-time non-recurring expenses
- Personal expenses run through the business
Understanding the Multiplier
The multiplier represents how many years of profit a buyer is willing to pay upfront. Most small businesses sell for between 1.5 and 3.5 times SDE. High-growth tech companies or highly stable medical practices may see multipliers of 4.0 or higher.
Realistic Valuation Example
Imagine a local landscaping company with the following financials:
- Annual SDE: $120,000
- Industry Multiplier: 2.0 (standard for service businesses)
- Inventory/Equipment: $40,000
- Business Debt: $10,000
The calculation would be: ($120,000 × 2.0) + $40,000 – $10,000 = $270,000.
Key Factors That Increase Your Value
To secure a higher multiplier, focus on reducing owner dependency, diversifying your customer base, and maintaining clean financial records. Buyers pay a premium for businesses that can run successfully without the current owner's daily involvement.