How do you calculate what a business is worth?

Start by determining the business's true earnings (SDE for smaller businesses, EBITDA for larger ones), then apply a market multiple for the industry and size. For example, $350,000 of SDE at a 2.7x multiple implies a value near $945,000. Assets, growth, customer concentration, and owner dependence adjust the figure up or down.

What makes a business worth a higher multiple?

Recurring revenue, diversified customers, documented systems, a capable team that runs without the owner, consistent growth, and clean financials all push the multiple higher. Heavy owner dependence, customer concentration, declining sales, or messy books push it lower.

What Is a Fair Price to Pay for a Business?

Q: What is a fair price to pay for a business?

A fair price for a small business is typically a multiple of its earnings, most main-street deals sell for about 2.0x to 3.5x seller's discretionary earnings (SDE), with the U.S. median around 2.7x SDE. Larger or faster-growing businesses use an EBITDA multiple and command higher prices.

A fair price for a small business is usually a multiple of its earnings, most main-street deals sell for about 2.0×, 3.5× seller's discretionary earnings (SDE), with the U.S. median near 2.7× SDE. Larger or faster-growing businesses are priced on an EBITDA multiple and fetch more. The "fair" number is whatever the earnings, risk, and financing can support, not the seller's asking price.

The core method: earnings × multiple

Pricing a small business is two steps: figure out the real earnings, then apply a market multiple.

Example, pricing a business on SDE
Input	Value
Seller's discretionary earnings (SDE)	$350,000
Market multiple	2.7×
Implied fair value	$945,000

Get SDE right first, it's earnings plus owner salary and legitimate add-backs. A verified QoE protects you from an inflated earnings number.

What moves the multiple

Higher multiple: recurring revenue, diversified customers, documented systems, a team that runs without the owner, steady growth, clean books.
Lower multiple: heavy owner dependence, customer concentration, declining sales, thin or messy financials, cyclical demand.

Two businesses with identical earnings can be worth very different amounts based on risk. See how ranges vary by size and sector in our multiples explained guide and the industry multiples data.

"Fair" is also what you can finance

A price is only fair if the cash flow can carry the debt and still pay you. Even a market-multiple price can be too high if it leaves the DSCR under 1.15×. Pressure-test any number with our valuation calculator and read the full method in how to value a small business.

Frequently asked questions

Typically 2.0x to 3.5x SDE for main-street businesses, with the U.S. median near 2.7x. Larger businesses use an EBITDA multiple and cost more.

Determine true earnings (SDE or EBITDA), then apply a market multiple. $350,000 of SDE at 2.7x implies about $945,000, adjusted for risk and growth.

Recurring revenue, diversified customers, documented systems, a self-running team, growth, and clean financials. Owner dependence and concentration lower it.