How Much Is My Business Worth? A Seller's Guide

Why Revenue Multiples Are the Wrong Starting Point

When business owners estimate their own value, they almost always anchor to revenue — "one times sales" or "two times revenue." That method has almost no basis in how buyers and lenders actually price businesses.

Buyers pay multiples of earnings, not revenue, because revenue tells you nothing about what cash flows to the owner after paying staff, rent, materials, and operating costs. Two businesses with identical $2M revenue but different cost structures — one generating $600K in EBITDA, the other generating $200K — are not worth the same amount. Not close.

The correct starting point for any small business valuation is adjusted EBITDA (for businesses above roughly $750K in earnings) or SDE — Seller's Discretionary Earnings — for smaller owner-operated businesses. Get these numbers right first. The multiple comes after.

EBITDA vs. SDE: Which Metric Applies to Your Business

EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — is the standard valuation metric for businesses large enough to have a management layer that would survive the owner's departure. It measures the business's cash generation after all market-rate operating costs, including a market-rate manager to replace the owner's operational role.

SDE — Seller's Discretionary Earnings — adds the owner's full compensation back on top of EBITDA. It represents the total economic benefit available to a single full-time owner-operator. SDE is appropriate when the buyer will step into the owner role directly and there is no expectation of a hired GM.

The crossover point is roughly $750K–$1M in earnings. Below that, most buyers are evaluating SDE. Above that, they are evaluating EBITDA. If your business generates $400K and you pay yourself $180K, your SDE is approximately $580K — the total cash a working owner-buyer could expect to extract. If your business generates $1.5M in earnings and requires a hired GM, buyers are valuing the EBITDA after that management cost.

For a full breakdown of both metrics and when each applies, see the EBITDA multiples explained guide.

How to Calculate Your Adjusted EBITDA

Start with net income from your most recent federal tax return. Add back: income taxes, interest expense, depreciation, and amortization. That gives you unadjusted EBITDA.

Then add back legitimate normalizing adjustments — the things that inflate expenses under your ownership but won't apply under a buyer's ownership:

**Owner compensation above market rate.** If you pay yourself $350K and a qualified GM would cost $120K, the $230K difference is a legitimate add-back. Document it with comparable manager salary data.

**Personal expenses run through the business.** Cell phones, vehicles used personally, travel with personal benefit — any expense that is yours, not the business's. Document with receipts or bank statements.

**One-time non-recurring expenses.** Legal settlements, a facility move, equipment replacements that won't recur. These need to actually be non-recurring — expenses that show up under a different line item every year are not one-time.

**Owner-owned real estate at above- or below-market rent.** If you own the building and charge the business $8K/month when market rent is $5K/month, the $3K difference needs to be adjusted out. The reverse also applies.

The result — net income plus EBITDA add-backs plus normalizing add-backs — is your adjusted EBITDA. This is the number buyers and lenders underwrite.

EBITDA Multiple Ranges by Industry

Once you have your adjusted EBITDA, the multiple applied to it reflects the market's assessment of your industry, your revenue quality, and your business's transferability. These ranges reflect actual transactions in the lower middle market.

Home services — HVAC companies, plumbing, electrical, pest control — trade at **3.5x–6.0x** EBITDA. The spread is driven by recurring maintenance revenue (higher) versus one-time project work (lower) and technician licensing depth.

Healthcare practices — dental practices, physical therapy, optometry, veterinary — trade at **4.5x–8.0x**. The premiums reflect patient retention, licensing moats, and recurring payer relationships.

Professional services — accounting, financial planning, insurance — trade at **4.0x–7.0x**, driven by long client relationships and high EBITDA margins.

Landscaping and lawn care — **3.5x–5.5x**, driven by commercial maintenance contract mix and route density. See the landscaping EBITDA multiples guide for a detailed breakdown.

B2B services and IT managed services — **4.0x–7.0x**, driven by contract length and recurring revenue.

Full industry-by-industry context on how valuations are calculated for specific business types is in the how to value a small business guide.

The Five Factors That Move Your Multiple Up or Down

Within your industry's range, the specific multiple your business commands depends on five variables. Every one of these is within your control to improve before you go to market.

**1. Revenue quality and predictability.** A business where 60%+ of revenue comes from recurring contracts or subscription-like relationships trades at 1–2x more than an equivalent transactional business. Customers under contract cannot leave overnight. Buyers pay for visibility.

**2. Management depth.** If your business can operate for 90 days without you — because there is a real management layer, documented processes, and no single key-person dependency — buyers price it significantly higher. This is the highest-leverage improvement any seller can make before going to market.

**3. Customer diversification.** Any single customer representing more than 20–25% of revenue triggers buyer concern. Above 35%, many buyers will require an earnout or walk. Diversify your customer base before you go to market.

**4. EBITDA margin vs. industry peers.** A business generating 28% EBITDA margins in an industry that averages 18% commands a premium. Margin compression without explanation — rising labor without pricing adjustments — is a discount factor.

**5. Clean financials and documentation.** Three years of tax returns that match your P&Ls, a clean add-back schedule with documentation, and organized operational records signal a transferable business. Sellers who hand buyers a mess get priced for the work required to untangle it.

How to Use Your Valuation to Prepare for Sale

Running your own valuation before you engage a broker or talk to a buyer is not just useful — it is protective. Sellers who understand their own numbers consistently outperform those who discover valuation for the first time during negotiations.

The most productive use of a self-calculated valuation is identifying which of the five factors above you can improve in the 12–24 months before going to market. Building recurring contract revenue, reducing customer concentration, and developing management depth are each changes that take time but translate directly into a higher multiple when you sell.

For the specific preparation steps that move the needle in the 12–18 months before a sale — clean financials, reducing key-person dependency, formalizing customer agreements — the how to get your business ready to sell guide covers the full pre-sale preparation process. The exit readiness framework gives a 24-month countdown timeline for sellers who want to maximize what their business is worth.

For accounting and professional service firms specifically, accounting firm valuation covers how client retention rates and billing model affect multiples in that sector.