How to Value a Small Business Before Selling

Selling a business is one of the most significant financial decisions you will ever make. Before listing, every owner should have a clear, defensible answer to the question: "What is my business worth?"

The Three Main Valuation Methods

1. Seller's Discretionary Earnings (SDE) Multiple

The most common method for small businesses (under $5M in revenue). SDE = net profit + owner salary + add-backs (depreciation, one-time expenses, perks). Businesses typically sell for 2–4× SDE depending on risk, growth, and industry.

2. EBITDA Multiple

Used for mid-market businesses. EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) is multiplied by an industry-specific factor, typically 3–6×.

3. Asset-Based Valuation

Best for asset-heavy businesses (real estate, manufacturing). Value is derived from the fair market value of tangible assets minus liabilities.

Factors That Increase Your Multiple

• Recurring revenue or long-term contracts
• Diversified customer base (no single client >20% of revenue)
• Strong management team that can operate without the owner
• Clean financials for at least 3 years
• Growth trend (year-over-year revenue increase)

Getting a Professional Opinion

While online calculators can give ballpark figures, a certified business broker or M&A advisor can produce a formal Business Valuation Opinion (BVO) that stands up to buyer scrutiny and helps you negotiate from a position of strength.

Ready to find out what your business is worth? Connect with a verified broker on Advertsale for a free consultation.