How to Value a Small Business

The Two Most Common Valuation Methods

For small businesses under $10M in revenue, two methods dominate: the SDE multiple method and the revenue multiple method. Both work by applying an industry-specific multiple to a key financial metric.

1. SDE (Seller's Discretionary Earnings) Multiple

SDE represents the total financial benefit a single owner receives from the business: net profit + owner's salary + discretionary expenses (personal travel, vehicle, meals). This is the most common method for main street businesses under $5M in revenue.

2. Revenue Multiple

Some businesses are valued primarily on revenue, especially high-growth or asset-light businesses. The revenue multiple is simply the price divided by annual revenue.

Industry Valuation Multiples (2025-2026)

Source data: BizBuySell (small business transaction database),Pepperdine Private Capital Markets Report. These are illustrative ranges based on aggregated market data. Actual multiples vary significantly by business performance, growth rate, industry trends, and market conditions. Use as a rough planning estimate — not as a precise valuation.

What Affects Your Business Value?

• Profitability — Higher margins command higher multiples. A business with 20% net margins will sell for more than one with 5% margins.
• Growth trend — Growing businesses earn premium multiples. Declining businesses sell at a discount.
• Customer concentration — If one customer represents 40%+ of revenue, that's risk. Diversified customer bases are worth more.
• Owner dependence — Businesses that run without the owner are worth significantly more than owner-operated businesses.
• Industry trends — Some industries are hot (technology, healthcare) while others are out of favor (brick-and-mortar retail).