The guide
The short answer
Most small businesses are valued as a multiple of what they earn for their owner. In the International Business Brokers Association's Q2 2026 survey of brokers, the multiple for sales under $2 million ran from 2.0 to 3.1 times seller's discretionary earnings (the owner's pay and profit combined). Where yours lands depends on factors such as whether a buyer can verify the earnings and whether it works without you.
How much is a small business worth?
Most small businesses are priced on what they earn for their owner. A buyer pays for the income the business will produce for them, adjusted for how confident they are that it will continue.
So the price is two numbers multiplied together:
Earnings × a multiple
The multiple is the number of years of earnings a buyer will pay for. For smaller businesses the earnings measure is seller's discretionary earnings (SDE): what one full-time owner takes out in a year, including their pay and perks. For larger ones it is EBITDA (earnings before interest, taxes, depreciation and amortization), which assumes a paid manager. SDE vs EBITDA explains the difference.
Small-business accounts are prepared for tax reporting, not to show a buyer the cash flow available to an owner. Recasting presents the same records in the way buyers and lenders assess them. For example, a made-up plumbing company shows $212,000 of profit on its tax return, and $464,000 of SDE once its owner's pay, interest and depreciation, personal costs and a one-off legal bill are added back. Each add-back needs paper behind it.
What are the main ways to value a business?
The IRS's business valuation guidelines name three generally accepted approaches.
| Approach | The question it asks | In a small business sale |
|---|---|---|
| Market | What have similar businesses sold for? | The multiples below come from this approach. It is the one brokers quote |
| Income | What are future profits worth in today's dollars, allowing for risk? | A formal appraiser may use it to cross-check the multiple |
| Asset | What would the assets be worth, less the debts? | It matters most when a business owns a lot and earns little |
You will also hear rules of thumb, such as "one times revenue" or "so much per customer". Two businesses with the same revenue can earn very different amounts for their owner, so treat a rule of thumb as a sanity check, not a price.
What SDE and EBITDA multiples do small businesses sell for?
Multiples rise with size. The table shows what brokers reported in the Market Pulse for the second quarter of 2026, from the International Business Brokers Association (IBBA) and M&A Source. That edition surveyed 255 business brokers and M&A advisors in July 2026.
| Sale price | Q2 2026 | Multiple of |
|---|---|---|
| Under $500,000 | 2.0 | SDE |
| $500,000 to $1 million | 2.8 | SDE |
| $1 million to $2 million | 3.1 | SDE |
| $2 million to $5 million | 4.0 | EBITDA |
| $5 million to $50 million | 5.8 | EBITDA |
Read it with care. The highlights do not say whether the multiples are averages or medians, and do not split them by industry. From $2 million up they are multiples of EBITDA, not SDE, so the step from 3.1 to 4.0 is not like for like. IBBA's Q2 2025 highlights show the same bands at 2.0, 2.8, 3.0, 3.9 and 5.5, so none moved by more than 0.3 in a year.
Worked example: how a multiple sets the price
A made-up business with recast SDE of $400,000. This is an illustration, not a valuation. Say one buyer would pay 2.5 times and another 3.2 times:
| Multiple | Price | |
|---|---|---|
| A cautious buyer | 2.5 × | $1,000,000 |
| A confident buyer | 3.2 × | $1,280,000 |
Same business, same earnings, a $280,000 difference. What decides it?
What tends to move a business up or down the range?
Buyers and brokers generally weigh these, so they tend to move a price toward the top or bottom of the range.
| Towards the top | Towards the bottom |
|---|---|
| Three years of clean financials that match the tax returns | Books that don't match the tax returns |
| Earnings rising, or steady with a clear explanation | Falling or erratic earnings |
| A manager who runs things day to day | Everything goes through the owner |
| Revenue spread across many customers | One customer is a large share of revenue |
| Repeat or contracted revenue | Every sale won from scratch |
| A long, transferable lease | A short lease, or a landlord who won't engage |
| Written procedures, trained staff | Know-how in people's heads |
| A believable plan for growth | "There's lots of potential" |
Much of the left-hand column can be worked on before you sell. See how to prepare a business for sale.
Can an online business valuation calculator tell you?
It can give a rough idea, and no more. Many calculators ask for a few inputs, such as revenue, profit and industry, and apply a typical multiple to your earnings figure. Put in the $212,000 from the tax return in the plumbing example and, at say 2.5 times, you get $530,000. Put in the recast SDE of $464,000 and you get $1,160,000. Check whether the tool expects SDE or EBITDA, because the same multiple gives a different price on each.
A calculator also cannot see whether your add-backs are documented, whether the business runs without you, or how much one customer matters. Treat the result as something to test, not a price to hold out for.
Who values a business, and for what?
| Who | What you get | What it is used for |
|---|---|---|
| A business broker | An opinion of value: the likely price, typically recast earnings times a multiple from similar sales | Deciding whether to sell, and what to ask. Not a formal appraisal |
| A credentialed business appraiser | A signed valuation report that explains its method | Formal needs, such as a divorce, a partner buyout or an estate |
| The buyer's lender | A valuation the lender orders to check the price | A buyer using a U.S. Small Business Administration (SBA) 7(a) loan |
When a buyer borrows through an SBA 7(a) loan, SBA's lender rules (SOP 50 10 8.1, Appendix 15, in force since October 1, 2026) say the valuation must be requested by and prepared for the lender, by an independent appraiser with one of five named credentials. The lender may not use a valuation prepared for you or the buyer. The exception: at a business price of $350,000 or less, the lender may do its own valuation, unless the buyer and seller have a close relationship.
If the price is higher than the valuation, the buyer has to make up the difference with equity: their own money or, in limited cases, a loan from you on full standby (no payments to you while the SBA loan lasts). So the price comes down or the buyer puts in more. At a business price of $3 million or more the lender in most cases must also get a quality of earnings report (an outside professional's check that the earnings are real), done for the lender, not for you. Selling to a buyer with an SBA loan covers the rest.
How do you price a business for sale?
Three numbers get mixed up. The value is a view of what the business is worth, the asking price is what you list it at, and the sale price is what a buyer pays.
In the IBBA and M&A Source Q4 2023 Market Pulse report, deals that closed sold at an average of 86% of the asking price (or of the private target price the seller and advisor set) under $500,000, 93% from $500,000 to $1 million, and 94% from $1 million to $2 million. In its Q4 2022 report, unrealistic seller value expectations were the most common reason brokers gave for deals not closing, at 22% to 26% of answers by deal-size band. A price the earnings can't support tends to stall.
What is included in the price?
- Inventory may sit inside the price or be added on top.
- Property is often valued, and sold or leased, separately.
- Cash and debts are part of the deal. In many small sales, which are asset sales, the buyer takes the assets and you usually keep the company's cash and pay its debts from the proceeds. That is negotiated, though, and the contract may set a working capital level to leave in the business.
- Deal terms can change what a headline price is really worth. The IBBA's Q2 2026 deal financing chart shows the average share of the price paid in cash at close (including the buyer's bank loan) at 88%, 92% and 91% in the three bands under $2 million, with seller financing (you are paid part of the price later, usually with interest) averaging 11%, 6% and 7%. For example, $1.3 million with a third paid over five years at little or no interest can be worth less to you than $1.2 million in cash, because you wait and carry the risk that the buyer does not pay. See seller financing and earn-outs (part of the price depends on later results).
- What you keep is less than the price. A broker's fee, tax and loan payoffs come out of it, so ask your CPA about tax.
What to do next
- Recast your last three years to find your true earnings.
- Ask a broker who sells in your industry and price range for an opinion of value. Ask what it is based on, and whether it costs anything.
- If you need a formal valuation, use a credentialed business appraiser. If your buyer uses an SBA 7(a) loan, the lender orders the valuation, so you don't buy one.
See where your business stands
Our free readiness score takes about ten minutes. Fourteen questions, scored the way a buyer would weigh them, with the three gaps most worth fixing. Nothing you enter is shared with anyone.
Keep reading
- What is seller's discretionary earnings (SDE)? How to calculate it
- SDE vs EBITDA: which one will a buyer use to price your business?
- Add-backs when you sell a business: what buyers accept
- Selling to a buyer with an SBA loan: what changes for you
This guide is general information, not tax, legal or valuation advice. Every business is different: talk to your accountant, lawyer and broker about yours.