How Much Is My Business Worth?

This is the first question almost every owner asks, usually before hello. It is the right question, because everything else about a sale flows from it.

The problem is that most owners arrive with a number in their head that came from somewhere unreliable. Here is the straight version of how valuation actually works, without the jargon and without the flattery.

The short answer

Your business is worth its annual earnings to an owner-operator (SDE) multiplied by a market multiple, typically 2x to 5x depending on industry and risk. A business generating $400,000 in SDE is usually worth somewhere between $800,000 and $2 million. Where you land inside that spread is determined by how transferable and how predictable your cash flow is.

The value equation: earnings, measured as SDE or EBITDA, multiplied by a multiple set by risk, equals what a business is worth

Value comes from earnings, not effort

The hard truth first. Your business is not worth what you put into it, what you owe on it, or what you need to get out of it. It is worth what it earns for its owner, multiplied by what a buyer will pay for those earnings.

This surprises owners who have poured twenty years into a company. Those years matter enormously to you. To a buyer they matter only insofar as they produce cash flow that continues after you leave. A buyer is not purchasing your history. They are purchasing your future cash flow and the risk attached to it.

Determining historical earnings

Start with net profit from your tax return, then add back:

The owner’s salary, since a new owner takes that benefit themselves
Personal expenses run through the business, like a vehicle or non-essential travel
Interest, taxes, depreciation, and amortization
One-time or non-recurring costs a new owner would not face again

Earnings are often determined by looking at Seller’s Discretionary Earnings for businesses with an owner-operator, or EBITDA, which factors in the earnings of the business without the owner actively involved and a general manager in place.

Step two: the multiple

Value is that earnings figure times a multiple. If your SDE is $400,000 and businesses like yours sell at 3x, the business is worth roughly $1.2 million.

The multiple is where owners get surprised, because it runs lower than expected. Across all industries in 2025 — the most recent complete year — the average sat near 2.5x SDE across the 9,500-plus transactions BizBuySell tracked.

Business size	Typical multiple	Measured on
Under $500K value	~2x	SDE
$500K – $2M	2.5 – 4x	SDE or EBITDA
$2M – $5M	4 – 5.5x	SDE or EBITDA
$5M+	5.5x and up	EBITDA

So the same business earning $400,000 might be worth $800,000 in a high-risk situation or $1.6 million in a strong one. That spread is enormous, and what determines it is risk.

What moves your multiple

The multiple measures how risky and how transferable your cash flow is. Buyers pay more for earnings they are confident will continue.

Raises it:

Recurring revenue. Contracts, memberships, maintenance agreements. This is why an HVAC company with a service book beats a general contractor of the same size.
Diversified customers. No single client leaving can sink the business.
A capable team and documented systems. The business runs without the owner.
Growth. Buyers pay for momentum.
Clean, verifiable financials. The buyer and their lender can trust the numbers.

Lowers it:

Owner dependence. The biggest single drag. If the business is really you, much of what makes it work leaves when you do.
Customer concentration. Losing one big client could gut the business.
Messy books. Buyers discount what they cannot verify.
Declining earnings, thin margins, or reliance on one supplier or employee.

You have real influence over most of these in the year or two before you sell. That is the whole idea behind maximizing value before you sell.

Why revenue is a trap

Owners anchor to revenue: the business does two million a year, so it must be worth a lot.

Revenue tells a buyer almost nothing on its own. A business doing $2 million with $150,000 in owner earnings is worth a fraction of one doing $2 million with $600,000. Buyers will pay a higher multiple for businesses that have higher earnings, not based on higher revenue with smaller earnings.

The underreporting problem

Some owners minimize reported income to reduce taxes, running expenses through the business, and sometimes not reporting all cash. This is not a wise decision at any time.

Businesses that have inconsistent financial records or shady deductions send a warning sign to buyers: if the seller chose to evade taxes or inflate their deductions, what else are they hiding about this business?

Buyers and lenders value businesses on documented, verifiable, and reported earnings. Income that is not reported is income that cannot be counted towards your business earnings.

How to get a real number

An online estimate gives you a rough starting figure in a few minutes.
A broker’s opinion of value, built from real comparable sales and current multiples, is the practical starting point for most owners.
A certified appraisal is a more comprehensive approach.

Be wary of anyone who hands you a flattering number without examining your financials and your risk profile. A high number that gets you to list feels good and then costs you months on the market. An honest number lets you decide clearly, and gives you something to grow toward if it falls short of what you need.

The market you are valuing into

The market has been steady for good businesses. Healthy businesses that are priced right will generally sell. But remember, you are competing against thousands of businesses, so it is important to put your best foot forward and have an honest representation of your business’s earnings and overall financial health.

Next Steps

Our advice is to start with our free valuation calculator, which takes about five minutes to complete. For a more comprehensive opinion of value, with a detailed assessment of your financials and business tax returns, reach out and we can explore other options.

Mark Herrmann is the founder of Trustmark Mergers & Acquisitions in Charlotte, North Carolina. This article is general information, not legal, tax, or financial advice.