What is SDE vs. EBITDA in business valuation?

SDE (Seller's Discretionary Earnings) adds the owner's entire compensation back to net profit, because the new owner replaces the seller's role. It is used for owner-operated small businesses where the owner works full-time in the business. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is used for larger businesses with professional management in place -- the buyer does not plan to personally run the business. EBITDA excludes owner compensation because professional management is already reflected in operating expenses.

How do valuation multiples vary by industry?

Significantly. SaaS and software businesses command 4x to 12x EBITDA or higher revenue multiples due to recurring revenue and low marginal cost. Professional services (consulting, accounting) trade at 2.5x to 4.5x SDE. Restaurants and retail trade at 1.5x to 3x SDE. Manufacturing typically ranges from 3x to 5x EBITDA. Home services and trades businesses: 2x to 4x SDE. M&A databases like Axial, Pratt's Stats, and BizComps provide transaction multiples by industry and size.

Does valuation include real estate if the business owns its building?

Typically, the real estate is valued and sold separately from the business operations. The 'business value' (applying an earnings multiple) reflects operating profitability, while real estate is typically appraised independently. If the business leases the building from a related party, the lease rate is normalized to market rent in the SDE calculation before applying the multiple.

How long does a business sale process take?

For main street small businesses (<$1M value): typically 6 to 12 months from listing to close. For mid-market businesses ($1M to $10M): 6 to 18 months. For larger transactions: 12 to 24 months. Using a business broker (for small transactions) or an M&A advisor (for mid-market) significantly affects timing and price realization. Most business sales close below the initial asking price -- the gap depends on deal preparation quality, market conditions, and business risk factors.

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Business Valuation Calculator

Estimate business value using four methods: EBITDA multiple, revenue multiple, discounted cash flow (DCF), and asset-based valuation with 2026 industry multiples by sector.

Business Financial Details

Annual Revenue ($)

Revenue Growth Rate (%)

Annual EBITDA ($)

Earnings before interest, taxes, depreciation, amortization

Industry

Custom EBITDA Multiple

Custom Revenue Multiple

Asset-Based Valuation

Total Assets ($)

Total Liabilities ($)

DCF Parameters

Discount Rate (%)

WACC or required return

Projected Cash Flow Growth (%)

Projection Period (years)

Terminal Growth Rate (%)

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Introduction

Most business owners have no idea what their business is worth until they are ready to sell -- at which point the number they receive is often a shock in one direction or the other. A manufacturing company owner expecting $3M based on revenue is offered $800,000 because earnings are thin. A services firm owner expecting $500,000 is surprised to learn the business could command $1.8M based on recurring revenue quality. Business valuation is not arithmetic -- it is a function of earnings, growth rate, risk, industry, and deal structure. According to BizBuySell's Insight Report, the median sale price to EBITDA multiple for small businesses sold in the US has ranged from 2.5x to 3.5x in recent years, with significant variation by industry. This calculator applies the most common small and mid-market valuation methods -- multiple of earnings, multiple of revenue, and asset-based valuation -- so you can see your business's value range across approaches and understand which method buyers in your industry will apply.

What This Calculator Does

This business valuation calculator applies multiple valuation methods: earnings multiples (EBITDA, SDE, or net profit), revenue multiples, and asset-based valuation (book value). Enter your financial figures and the applicable industry multiple ranges to receive a valuation range across methods. Use it to estimate business value for sale planning, buy-sell agreement preparation, partnership buyouts, or owner estate planning.

The Formula

Earnings Multiple: Value = EBITDA (or SDE or Net Profit) × Industry Multiple | Revenue Multiple: Value = Annual Revenue × Industry Revenue Multiple | Asset-Based: Value = Total Assets - Total Liabilities

SDE (Seller's Discretionary Earnings) is the most common earnings measure for small businesses: net profit plus owner's compensation, depreciation, amortization, one-time expenses, and personal expenses run through the business. EBITDA is used for larger or institutional-quality transactions. The multiple applied reflects buyer expectations for risk and growth: higher-growth, lower-risk businesses command higher multiples. Asset-based valuation is used when earnings are negligible but the business holds substantial assets -- common in real estate, manufacturing, and capital-heavy industries.

Step-by-Step Example

Calculate SDE (for small business valuation)

A business reports: Net income $142,000. Owner's compensation $120,000. Depreciation $18,000. One-time legal expense (non-recurring) $12,000. Personal vehicle run through business $14,400. SDE = $142,000 + $120,000 + $18,000 + $12,000 + $14,400 = $306,400.

Apply SDE multiple

The business is a regional home services company. Industry SDE multiple range for this category (BizBuySell data): 2.0x to 3.5x. Low estimate: $306,400 × 2.0 = $612,800. Mid estimate: $306,400 × 2.75 = $842,600. High estimate: $306,400 × 3.5 = $1,072,400.

Calculate revenue multiple

Annual revenue: $1,820,000. Home services revenue multiples: 0.3x to 0.7x revenue. Low: $546,000. High: $1,274,000.

Determine value range and likely transaction value

SDE multiple range: $613,000 to $1,072,000. Revenue multiple range: $546,000 to $1,274,000. The SDE method is the most applicable for this transaction size. Likely transaction range: $700,000 to $950,000 before deal structure adjustments (seller financing, earnout, asset vs. stock deal).

Real-World Use Cases

Buy-Sell Agreement Between Partners

Two partners own equal shares in a $2.1M revenue professional services firm. They need a formula for the buy-sell agreement to value the business if one partner exits. They agree on SDE × 3.25x with a 12-month trailing average SDE calculation. Last year's SDE: $380,000. Buy-out value of departing partner's 50% share: $380,000 × 3.25 × 50% = $617,500. The agreed formula prevents dispute about valuation methodology at the time of a triggered exit.

Preparing for an M&A Process

A software company founder plans to sell in 18 months. Current trailing 12-month EBITDA: $420,000. EBITDA multiple range for B2B SaaS (Axial data): 4x to 8x for sub-$5M EBITDA. Current estimated value range: $1.68M to $3.36M. To reach the top of that range, the founder needs to demonstrate recurring revenue quality, customer concentration below 20%, and contract length above 12 months -- all factors that inform the multiple.

Estate Planning and Business Owner Life Insurance Needs

An estate attorney advises a 58-year-old business owner to value their business for estate planning. The business is a manufacturing company with $280,000 EBITDA and $1.4M in net tangible assets. EBITDA multiple: 3.5x = $980,000. Asset-based: $1.4M. The higher asset-based value is used for estate tax purposes. Life insurance coverage is set at $1.4M to ensure heirs can maintain the business or fund a buyout without forced liquidation.

Comparison

Valuation Method	Best For	Common Multiple Range	Key Input
SDE Multiple	Small business sale (<$5M revenue)	2x - 4x SDE	Seller's Discretionary Earnings
EBITDA Multiple	Mid-market ($5M+ revenue)	3x - 8x EBITDA (varies by industry)	EBITDA (trailing 12 months)
Revenue Multiple	High-growth or pre-profit businesses	0.3x - 8x+ revenue	Annual revenue
Asset-Based	Capital-heavy, low earnings businesses	1x - 1.3x net assets	Balance sheet book value
DCF (Discounted Cash Flow)	Sophisticated buyers, larger transactions	Derived from financial model	Projected future cash flows

Common Mistakes to Avoid

Not adding back owner compensation to earnings before applying a multiple. If the owner works full-time in the business and pays themselves below market rate to show higher net profit, the SDE calculation must add back the true owner compensation. Conversely, if the owner takes above-market pay, add back only the market rate equivalent. Buyers will perform this normalization in due diligence -- doing it yourself prevents surprises.
Assuming the multiple from one industry applies to another. A 5x EBITDA multiple may be appropriate for a software company with predictable recurring revenue and high retention. The same 5x applied to a restaurant with single-location risk, owner-dependent operations, and high employee turnover would significantly overvalue the business. Always source multiples from your specific industry and deal size.
Ignoring customer concentration risk in the valuation. A business where one customer represents 40% of revenue is structurally riskier than one with the same revenue diversified across 200 clients. Buyers will either apply a lower multiple or demand a price reduction -- often 0.5x to 1.0x EBITDA -- for significant customer concentration. Diversify revenue before an exit process.

Frequently Asked Questions

Accuracy and Disclaimer

Business valuation results are estimates based on the financial inputs provided and general industry multiple ranges. Actual transaction values depend on specific due diligence findings, deal structure, market conditions, buyer type, and negotiated terms. This calculator does not substitute for a certified business valuation (CBV or CVA) or formal M&A advisory process for significant transactions. Consult a qualified business valuator, CPA, or M&A advisor for binding valuation work.

Conclusion

Business valuation is a range, not a point. Any single method gives a theoretical value; the transaction price is determined by what a motivated buyer will pay given deal structure, due diligence findings, and market conditions at the time of sale. Begin valuation planning 2 to 3 years before an intended exit -- enough time to improve the metrics that drive value. To understand the net profit that feeds into earnings multiples, use the Net Profit After Tax Calculator. For SaaS and subscription businesses where revenue quality drives multiples, the Customer Lifetime Value Calculator is directly relevant to valuation conversations.