How to Value a Small Business: SDE, EBITDA and Revenue Multiples

SDE is the earnings available to one full-time owner-operator. Start with net profit, then add back the owner's salary and benefits, interest, taxes, depreciation and one-time or personal expenses. It's used for smaller businesses where a buyer expects to replace the owner's labor with their own.

EBITDA subtracts a market-rate salary for management before showing profit, because the buyer will need to hire that role. It suits larger or manager-run businesses, and buyers such as investors and search funds often prefer it.

Rule of thumb: if the buyer will work in the business, expect SDE. If they'll hire a manager, expect EBITDA. Our guides on SDE versus EBITDA and the SDE add-backs list go deeper on the adjustments.

Work through these steps with your last two or three years of financials:

1. Start with net income from the tax return or profit and loss statement.
2. Add back interest, taxes, depreciation and amortization.
3. Add back the owner's compensation and perks, for SDE. For EBITDA, subtract a market salary for the manager you'd need.
4. Add back one-time costs, such as a legal settlement or a move.
5. Remove one-time gains and adjust any related-party rents or costs to market rates.
6. Document each adjustment with a receipt, invoice or bank statement.

Buyers will challenge every add-back, so keep only those you can prove. Serious buyers often go further and commission a review of earnings, tracing revenue and costs to bank statements and tax returns. If your adjusted figure holds up under that kind of check, you can defend the multiple, and if it doesn't, the price usually drops or the deal ends. Say your business earns $180,000 of net profit and the owner takes a $120,000 salary; in this example, SDE is at least $300,000 before other adjustments.

Base it on evidence. Look for recent sales of similar businesses in the same sector, size range and geography, from brokers, marketplaces or an appraiser. Then adjust up or down for factors that change risk:

• Growth and trend: rising earnings support a higher multiple than declining ones.
• Customer concentration: if one customer is a large share of revenue, buyers discount for the risk.
• Owner dependence: businesses that run without the owner sell for more.
• Recurring revenue: subscription or contract revenue is valued differently from one-off sales.
• Documentation and systems: clean books and repeatable processes reduce buyer risk.

Say comparable sales suggest a range of 2 to 3 times SDE. For example, with SDE of $300,000 the range is $600,000 to $900,000, and where you land depends on the factors above. Treat any number as a range, not a point.

Revenue tells you nothing about profit. Margins differ enormously by industry, so the same revenue can be worth very different amounts. Damodaran's US industry data show EBITDA margins of 35.93 percent for software (systems and applications) versus 5.4 percent for grocery and food retail¹. A dollar of revenue in the first is worth far more than in the second, so a single revenue multiple can't be applied across both.

Revenue multiples are still used for subscription businesses where growth and retention drive value, and as a quick cross-check. For a software business, growth matters too: median ARR growth for private B2B SaaS companies was 25 percent in 2024². Use those figures as context, and see private SaaS valuation multiples for that model.

Start well before you list. Clean up the books, separate personal and business expenses, document processes, and reduce dependence on yourself and on one customer. A sale process typically runs through a marketplace or broker, then a letter of intent and due diligence. Marketplaces such as Acquire.com, Flippa and Empire Flippers differ in the kinds of businesses they list and how much support they give, so compare them on what you're selling.

Also plan the deal structure: cash at close, earn-outs, seller financing and working capital adjustments change what a headline price is worth. Use our working capital calculator to see how a peg might affect proceeds, and speak to a CPA and attorney about tax treatment of the sale.