1) Common valuation methods
Seller’s Discretionary Earnings (SDE)
Buyers often use SDE for small, owner-operated businesses. In other words, it shows the total economic benefit available to one owner.
- SDE = net profit + owner pay/benefits + one-time or non-essential expenses
- Example: Net profit $100,000 + owner pay $80,000 + one-time costs $10,000 = SDE $190,000
EBITDA multiples
Next, many buyers use EBITDA for larger businesses with management teams. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
- Many industries see multiples from 2× (smaller, slower-growth firms) to 6× (larger, scalable firms)
Finally: Asset-based value
This method fits asset-heavy companies. For example, it can fit manufacturers with a lot of equipment or inventory.
- Value = assets − liabilities
2) What drives business value
Once you choose a method, buyers still adjust value based on risk and upside. In practice, they focus on a few core areas:
- Financial performance: Consistent, growing revenue and profits
- Customer base: Recurring customers/contracts vs. one-off sales
- Market position: Brand recognition and competitive advantages
- Management team: Less owner dependence often increases value
- Growth potential: Clear opportunities for expansion or diversification
3) Documentation matters
Good records support your value. They also speed up buyer review.
- Financial statements (3–5 years), tax returns, and supporting schedules
- Legal documents, leases, customer/vendor contracts, and employee agreements
- A list of assets (equipment, inventory) and obligations (loans, leases)
Also, many owners coordinate this work with their CPA; through our affiliate Hedman Partners LLP, we can help keep financial reporting and documentation organized.
Tip: Consider a professional valuation or third-party appraisal. It can help set a realistic price. It can also support talks with buyers.
Pro tip: Also compare your business to recent sales in your industry. That gives you a useful baseline.