How to Calculate the Value of a Small Business (3 Methods)

Most sellers have a number in mind long before they have a method behind it. Buyers, brokers, and lenders do the opposite: they start with a method, then back into the number. If your valuation does not come from a recognizable calculation, it will not hold up for long in a real negotiation.

The three methods are SDE multiples, EBITDA multiples, and revenue multiples. This page is the worksheet version of the topic: calculation order, formulas, and weighting, with as little theory as possible. If you want the broader valuation context first, read How Much Is My Business Worth?. If you want to do the math yourself, start here.

The Three Methods at a Glance

Each method starts with a different measure of earnings and multiplies it by an industry-specific factor.

Method	Earnings Metric	What It Answers	Typical Multiples
SDE Multiple	Seller's Discretionary Earnings	What does the business put in the owner's pocket?	1.5x - 4.0x
EBITDA Multiple	EBITDA	What does the business earn as a standalone operation?	3.0x - 6.0x
Revenue Multiple	Gross Revenue	How does the top line compare to industry norms?	0.2x - 1.0x

For a deeper look at when SDE or EBITDA applies to your situation and how industry multiples are determined, see the dedicated guides. This post focuses on the calculation mechanics.

We will use one example throughout: a residential cleaning service generating $320,000 in annual revenue with 12 part-time employees and the owner managing operations full-time.

Line Item	Amount
Annual revenue	$320,000
Cost of goods sold (supplies, equipment)	$64,000
Operating expenses (staff, insurance, vehicle, marketing)	$144,000
Owner's total compensation (salary + benefits)	$72,000
Depreciation & amortization	$4,000
Interest expense	$2,000
Non-recurring expenses (van down payment)	$6,000

First, two numbers you will need for all three methods:

Gross Profit = $320,000 - $64,000 = $256,000

Net Operating Income = $256,000 - $144,000 = $112,000

Method 1: SDE Multiple

The SDE method is the most common approach for owner-operated small businesses. It calculates the total financial benefit the business provides to a single owner by adding back personal, non-cash, and non-recurring expenses.

Formula: SDE = Net Operating Income + Owner's Comp + D&A + Interest + Non-recurring

$112,000 + $72,000 + $4,000 + $2,000 + $6,000 = $196,000

Now multiply by the industry multiple. For home services, SDE multiples range from 2.0x to 3.0x:

Multiple	Calculation	Value
Low (2.0x)	$196,000 x 2.0	$392,000
Mid (2.5x)	$196,000 x 2.5	$490,000
High (3.0x)	$196,000 x 3.0	$588,000

SDE-based range: $392,000 - $588,000

This is the range an individual buyer who plans to run the cleaning service themselves would use. The $196,000 SDE represents their total annual benefit.

Method 2: EBITDA Multiple

EBITDA strips the calculation down to operating performance, adding back only depreciation and interest.

Formula: EBITDA = Net Operating Income + D&A + Interest

$112,000 + $4,000 + $2,000 = $118,000

For home services, EBITDA multiples range from 3.0x to 5.0x:

Multiple	Calculation	Value
Low (3.0x)	$118,000 x 3.0	$354,000
Mid (4.0x)	$118,000 x 4.0	$472,000
High (5.0x)	$118,000 x 5.0	$590,000

EBITDA-based range: $354,000 - $590,000

The range overlaps significantly with the SDE method. That internal consistency is a positive signal. A corporate buyer acquiring this cleaning service would hire a manager at $72,000 per year and evaluate the business on the $118,000 EBITDA.

Method 3: Revenue Multiple

The revenue method is the simplest and the least reliable on its own. It uses top-line revenue without adjusting for profitability.

Formula: Value = Revenue x Industry Revenue Multiple

For home services, revenue multiples range from 0.3x to 0.6x:

Multiple	Calculation	Value
Low (0.3x)	$320,000 x 0.3	$96,000
Mid (0.45x)	$320,000 x 0.45	$144,000
High (0.6x)	$320,000 x 0.6	$192,000

Revenue-based range: $96,000 - $192,000

This comes in dramatically lower than the earnings-based methods. That is normal for profitable service businesses where margins are healthy. The revenue method is most useful as a floor and a sanity check. It carries real weight in high-growth businesses that are not yet profitable, or in businesses with thin margins where earnings-based methods produce unreliably low numbers. For those cases, see when a revenue multiple deserves more weight.

Blending the Three Methods

A blended estimate combines all three methods into a single weighted range, producing a more balanced and defensible number than any single calculation.

Method	Weight	Mid Value	Weighted
SDE	50%	$490,000	$245,000
EBITDA	30%	$472,000	$141,600
Revenue	20%	$144,000	$28,800
Blended estimate			$415,400

This cleaning service is worth roughly $350,000 to $590,000, with a blended midpoint around $415,000.

The weights reflect how relevant each method is. SDE gets the heaviest weight because the owner operates the business full-time. If the business had professional management, EBITDA would carry more weight. If the business were high-growth but unprofitable, revenue would matter more. If you want to challenge those assumptions before a buyer does, compare the buyer-lens differences in SDE vs EBITDA.

Which Method Carries the Most Weight?

The primary method depends on your situation and buyer type.

Your Situation	Primary Method	Why
Owner-operated, under $1M SDE, individual buyer	SDE	Buyer replaces you and receives the full SDE
Professional management, corporate or PE buyer	EBITDA	Buyer installs a manager, owner's comp stays as expense
High-growth, pre-profit, or very thin margins	Revenue	Earnings-based methods produce unreliably low numbers
Not sure who will buy	All three, blended	Covers the full range of buyer types

For most small businesses in the $200K-$5M revenue range with an active owner, SDE drives the valuation. But calculating all three methods protects you from surprises and gives you a complete picture.

Your Valuation Starts with Math

Calculating the value of a small business is not subjective. Three formulas, your financial statements, and your industry's multiples produce a defensible range. What matters is not just finishing the math, but being able to explain the assumptions behind it when a buyer, broker, or lender pushes back.