Type in your annual SDE and an industry multiple, and you have a ballpark sale price in under a minute. It is the same shorthand method brokers use to open a conversation with buyers, and running it yourself means you are not hearing an unfamiliar number for the first time across a negotiating table.
The SDE multiple method values a business by multiplying seller's discretionary earnings by an industry-specific number. SDE is net profit with the owner's salary, benefits, and any one-time expenses added back. It represents what a full-time working owner would actually pocket. The multiple is where buyers and sellers argue.
This is a rough starting point, not a formal appraisal. Actual valuations also weigh asset values, lease terms, staff dependence, customer concentration, and the type of buyer (strategic acquirers often pay more than financial buyers). A certified business appraiser or business broker can produce a defensible number.
Take the calculator's own defaults: $100,000 in SDE and a 2.5x multiple. That prices the business at $250,000, with a range of $200,000 to $300,000 built from the fixed plus-or-minus-0.5 spread. Nudge the multiple instead of the SDE and the value moves in $50,000 jumps per half point, since $100,000 x 3.0 is $300,000 and $100,000 x 2.0 is $200,000, the exact top and bottom of the calculator's own range. In practice, SDE is the bigger lever: it is a direct multiplier, so a dollar of extra SDE is worth its full multiple in valuation, while talking a buyer up to a slightly higher multiple is usually the harder negotiation.
| Business type | Typical SDE multiple |
|---|---|
| Service businesses | 1.5x to 2.5x SDE |
| Tech-enabled or growing businesses | 3x to 5x SDE |
The calculator itself always applies a flat plus-or-minus-0.5 spread, regardless of industry. A service business and a software business entered with the same SDE get the same width of range here, even though real-world ranges for those two types are not actually the same width. Treat the spread as a starting shape, not a substitute for an industry-specific multiple.
The range above is a napkin-math spread, not an appraisal. Buyers, lenders and the IRS all use more rigorous methods.
Before you use this number in a conversation with a buyer or a lender, it helps to know your break-even point and how your margins stack up against the rest of the industry.
Seller's discretionary earnings is net profit plus the owner's total compensation and benefits, plus any non-recurring or personal expenses run through the business. It answers the question: what would a new full-time owner actually earn from this business? The owner's salary gets added back because a buyer would pay themselves differently.
It depends heavily on industry, size, and how dependent the business is on the current owner. Service businesses without recurring contracts often trade at 1.5x to 2.5x SDE. A software-enabled business with subscriptions might command 3x to 5x. A business broker who works your sector will have recent transaction data. These are estimates only, not financial advice.
EBITDA (earnings before interest, taxes, depreciation, and amortization) is used for larger businesses and does not add back the owner's full salary. SDE is standard for small businesses where one person runs the operation. Once a business has a full management team, buyers shift to EBITDA multiples, which run higher in absolute dollar terms.
The SDE multiple method values earnings power, not balance sheet assets. Equipment, inventory, and real estate may be included separately or reflected in the multiple, depending on the deal structure. Most small business sales exclude real estate, which is either sold separately or converted to a lease at closing.
SBA 7(a) loans are the most common vehicle: they typically require 10% down and can finance up to $5 million. Seller financing, where the previous owner carries a promissory note for part of the price, often fills the gap between what a bank will lend and the agreed purchase price. These are estimates only, not financial or legal advice.
Buyers pay more for recurring revenue, documented processes, multiple customers, and a business that does not require the current owner to function. Consistent year-over-year growth matters too, though one banner year followed by a flat one raises questions. These are estimates only, not financial advice.
