Question 1

How do you value a small business?

Accepted Answer

The most common method for small businesses is a multiple of Seller's Discretionary Earnings (SDE). Calculate SDE by taking net profit and adding back owner salary, one-time expenses, and non-cash charges. Then multiply by an industry-specific factor, typically 1.5x to 4x.

Question 2

What is a good SDE multiple?

Accepted Answer

SDE multiples vary by industry, growth rate, and risk. Service businesses often sell at 1.5-2.5x SDE. Established businesses with recurring revenue can command 3-4x or more. Location-dependent businesses tend toward the lower end.

Question 3

What factors increase a business valuation?

Accepted Answer

Recurring revenue, diversified customer base, documented processes, strong profit margins, owner independence, and consistent growth all push multiples higher. A business that runs without the owner is worth more than one that depends on them.

Question 4

Should I use revenue or earnings to value my business?

Accepted Answer

Earnings-based methods (SDE or EBITDA multiples) are more accurate for profitable businesses. Revenue multiples are sometimes used for high-growth companies or SaaS businesses that are not yet profitable, but they can be misleading for typical small businesses.

Question 5

What is the difference between SDE and EBITDA for valuation?

Accepted Answer

SDE adds back the owner's salary and personal perks, making it the standard for small owner-operated businesses. EBITDA does not add back owner compensation because it assumes a manager will be hired. Businesses with revenue above $1-2 million or with professional management teams typically use EBITDA.

Question 6

How do I increase my business value before selling?

Accepted Answer

Focus on reducing owner dependence, building recurring revenue, documenting processes, cleaning up financials, diversifying your customer base, and locking in key employees. Start 2 to 3 years before you plan to sell. Buyers pay premiums for businesses that can run without the current owner.

Question 7

How long does it take to sell a small business?

Accepted Answer

The average small business sale takes 6 to 12 months from listing to closing. Businesses priced accurately with clean financials sell faster. Overpriced listings or those with undocumented processes can sit on the market for 18 months or longer.

Question 8

Do I need a business broker to sell my company?

Accepted Answer

A broker is not required, but most sellers benefit from one. Brokers handle valuation, marketing, buyer screening, and negotiation. They typically charge 8-12% of the sale price for businesses under $1 million. For larger deals, the commission percentage drops. The right broker often gets a higher sale price that more than covers their fee.

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