Business valuation calculator

Seller's Discretionary Earnings (SDE) adds the owner's own salary back to EBITDA, on top of the usual interest, tax, depreciation, and amortization add-backs. EBITDA assumes a business is run by a professional manager earning a market salary; SDE assumes the opposite — that the buyer themselves may take the owner's place and personally earn everything the business generates. For an owner-operated small business, SDE is almost always the more realistic starting point.

Anything the current owner personally benefits from that a new owner wouldn't necessarily keep paying for: the owner's own salary and benefits, interest on debt the buyer may not assume, depreciation and amortization (non-cash), and genuinely one-time or personal expenses run through the business (a family member's car lease, a one-off legal settlement, a bad debt write-off that isn't representative of a normal year).

Most small, owner-operated businesses sell in the 2x-3x SDE range. Businesses with recurring revenue, low customer concentration, documented systems, and a management team that isn't just the owner tend to command multiples toward the higher end or above this range; businesses that are entirely dependent on the owner's personal relationships or labor tend to sell toward the lower end.

Because the multiple itself is a judgment call, not a formula output — it depends on factors a spreadsheet can't see directly: growth trend, customer concentration, competitive position, and how much of the business would walk out the door with the current owner. A ±0.5x band around the entered multiple is a more honest representation of what a valuation actually is: a defensible range to start a negotiation from, not a single correct price.

Not well. The SDE multiple method assumes a business is already generating real discretionary earnings for an owner to add back. A pre-revenue or pre-profit company (most early-stage startups) is usually valued on a completely different basis — revenue multiples, comparable funding rounds, or discounted cash flow — not SDE.

It's the same core method — SDE times a multiple — that business brokers use as a first-pass estimate for small, main-street businesses (roughly under a few million dollars in revenue). A formal appraisal for a larger transaction, a lender, or a legal proceeding will typically go further: multiple valuation approaches cross-checked against each other, industry-specific comparable sale data, and adjustments this calculator doesn't attempt.

Generally no, not in the SDE multiple itself. If the business owns its real estate, that property is usually valued separately (at market value) and added to the SDE-based valuation, rather than folded into the earnings multiple — mixing the two makes the multiple harder to compare against similar businesses that lease instead of own.

Heavily. A business where one or two customers account for a large share of revenue is riskier to a buyer — losing that one relationship after the sale could gut the business's earnings. Buyers and brokers typically apply a lower multiple, sometimes meaningfully lower, to businesses with high customer concentration versus a comparable business with a broad, diversified customer base.

No — a 409A valuation is a different exercise entirely, used to set the fair market value of common stock for employee option grants at a venture-backed company, and it typically uses an option-pricing model rather than an earnings multiple. The discount for lack of marketability (DLOM) inside that model is often estimated with the Chaffee (protective put) method, which prices a hypothetical put option using the Black-Scholes formula — see the Chaffee DLOM calculator for that specific piece. This calculator's SDE-multiple approach is built for valuing an owner-operated small business for sale, not for setting a 409A strike price — that's a specialized report you'd typically get from a qualified independent appraiser.