"How much is my business worth" is usually the first question owners ask, and it has a rough answer you can estimate yourself in a few minutes — plus a more accurate answer that takes a real valuation to get right. Here's how to do the quick math, and why it's only ever a starting point.
What's the Basic Formula?
Most small businesses are valued using this formula: Seller's Discretionary Earnings (SDE) × industry multiple = estimated value. SDE is your business's net profit with the owner's salary, personal expenses run through the business, and one-time costs added back — essentially the total economic benefit of owning the business. Multiply that by a multiple typical for your industry, usually somewhere between 2x and 4x SDE for most small businesses, and you have a rough estimate. If your business generates $250,000 in SDE and your industry typically sells at 2.5x, that's a rough estimate of about $625,000.
Once your business is large enough to be run by a manager rather than the owner personally, typically above a few million dollars in earnings, the calculation shifts from SDE to EBITDA, paired with a different, usually higher, multiple. If you're not sure which applies to you, see our guide to SDE vs. EBITDA — using the wrong one will throw off your estimate significantly in either direction.
Should You Value Your Business Based on Revenue Instead?
For most small businesses, no — revenue multiples are less reliable than earnings-based multiples because two businesses with identical revenue can have very different profit margins, and profit is what a buyer is actually purchasing. Revenue multiples do get used in specific cases: some professional service businesses (like accounting or consulting firms) are sometimes valued partly on a revenue multiple due to predictable client retention, and larger businesses valued on EBITDA sometimes get a secondary revenue check. But if you're estimating your own business's worth, earnings-based multiples (SDE or EBITDA, depending on size) will get you a far more accurate number than revenue alone.
How Do You Find the Right Multiple for Your Industry?
This is where most DIY estimates go wrong — using a generic "businesses sell for 3x profit" rule of thumb instead of the actual range for your specific industry. Multiples vary meaningfully by sector: retail and restaurants often sell in the 1.5x to 3x SDE range, home services and healthcare-related businesses often command 2.5x to 5x, and specialized or recurring-revenue businesses can go higher still. See our guide to business valuation multiples by industry for a fuller breakdown by sector.
Why Is This Only an Estimate, Not a Real Valuation?
The formula gives you a starting range, not a defensible number. A real valuation adjusts for things a simple formula can't capture: how dependent the business is on you personally, how concentrated your customer base is, your growth trend, and the strength of your local buyer market. Two businesses with identical SDE can be worth meaningfully different amounts once those factors are accounted for — which is exactly why the quick math is useful for planning, but not for setting an actual asking price.
Owner dependency in particular tends to have an outsized effect that a simple formula completely misses. Two businesses with identical SDE, one that runs fine without the owner in the building and one where the owner is essential to every customer relationship, can be worth meaningfully different amounts to a buyer, even though the formula spits out the same number for both.
What Should You Do With Your Estimate?
Use it to get a rough sense of where you stand, then get a real number before you make any decisions based on it — whether that's planning your retirement timeline, negotiating with a potential buyer, or deciding whether now is the right time to sell. A rough estimate is useful for early planning; it's not something to hand a buyer, use in a legal or tax matter, or lean on for a major financial decision. See our guide to getting a business valuation done for how that process works and what it costs.
If you want a real answer instead of a rough estimate, get in touch with Silver Surf — we provide market-based valuations grounded in what similar businesses are actually selling for, not a generic formula.
FAQ
1. What's the formula for estimating what my business is worth?
Seller's Discretionary Earnings multiplied by an industry-appropriate multiple, typically 2x to 4x SDE for most small businesses.
2. Is there a free calculator for business value?
The SDE-times-multiple formula can be done by hand with your own numbers; free online calculators exist but should be treated as a rough starting estimate, not a number to act on.
3. Does business value depend on revenue or profit?
Profit, not revenue — two businesses with identical revenue can have very different values if their profitability differs, which is why earnings-based multiples are more reliable than revenue multiples for most small businesses.
4. Why might a real valuation come back different from my own estimate?
A formula can't account for owner dependency, customer concentration, growth trend, or local buyer demand — a real valuation adjusts for all of these, which is why it can land meaningfully above or below a quick estimate.