How Much Is Your Business Worth? What Buyers Look At

How much is a business worth? For most small businesses, it is a multiple of the cash it makes for its owner. Buyers call that cash "seller's discretionary earnings." The short name is SDE. In BizBuySell's report for the second quarter of 2026, businesses that sold went for an average of 2.7 times their cash flow. But the average hides a wide range. Much of what moves a business up or down that range is in your hands.

Why do buyers care about earnings, not sales?

Sales tell a buyer how busy you are. Earnings tell them what they will take home.

Two companies can both bring in $1 million a year. One keeps $250,000 for its owner. The other keeps $60,000. A buyer is buying the cash, so those two firms are not worth the same, even with the same sales.

So "How much is a business worth with $1,000,000 in sales?" has no one answer. In the same BizBuySell report, businesses sold for an average of 0.7 times their revenue. That is an average across thousands of very different firms. It tells you little about yours.

What is seller's discretionary earnings (SDE)?

SDE is what the business would pay one full-time owner. Start with the profit. Then add back:

• What you pay yourself.
• Costs that are really personal, run through the business.
• One-time costs that won't come back, like a lawsuit or a big repair.

The idea is simple. A buyer wants to know what they would make if they stepped into your chair. Your bookkeeper or CPA can help you add it up from your books.

What is a business valuation multiple?

A multiple is the number buyers use to turn earnings into a price. If a business has $200,000 of SDE and sells for $540,000, it sold at 2.7 times SDE.

Multiples move with the market, the industry and the business. BizBuySell's Q2 2026 average was 2.7. Some firms sell for less. Some sell for more. The rest of this article is about what pushes yours one way or the other.

What makes a business worth more to a buyer?

Buyers ask the same questions, again and again. Each one is about risk. Less risk usually means a better offer.

1. Does it run without the owner? If you do every bid, hold every key customer and sign every check, a buyer is buying your job. They will ask what happens when you leave.
2. Are the books clean? Clear records that match the tax returns. A buyer will not pay for profit they cannot see.
3. Does the work repeat? Service plans, repeat customers and steady contracts are worth more than one-off jobs.
4. Is any one customer too big? If one customer is a third of your sales, a buyer sees that third walking out the door.
5. Will the team stay? Good people who are trained, paid fairly and staying put.
6. Is it written down? How you price, schedule, hire and train. A buyer can run what is written. They have to guess at what is in your head.

None of these are fixed in a month. Most take a year or more. That is why owners who start early tend to have more choices when they sell.

How do you find out what your business is worth?

Here are three common ways, from rough to formal.

• Online calculators. Quick to try, but they only know what you type in. Treat the answer as a guess.
• A business broker. A broker will give you a range based on what similar firms sold for. They are paid when the business sells.
• A business appraiser. A certified appraiser writes a formal report. Owners often get one when a partner buys out another, or when a bank asks for one.

When you need a formal number, for a loan, a buyout or a sale, an appraiser or a broker is the right call.

A worked example

This is a made-up example. It is not a client, and it is not a value for your business.

Maria owns a plumbing company. Sales last year were $1.2 million. Her books show:

• Profit: $80,000
• Her own pay: $110,000
• Her truck and phone, run through the business: $10,000

Her SDE is $80,000 + $110,000 + $10,000 = $200,000.

An average is just an average, and no business is average. A broker would look at her real situation.

Then the broker asks the questions above. Maria does every bid herself. Her two biggest customers know only her. Nothing is written down. Each answer makes a buyer more careful.

So Maria makes a three-year plan. She trains a lead to do bids. She moves her big customers to a service plan with her office as the contact. She writes down how the company prices and schedules. When she sells, the business looks less like her job and more like a company.

Why does this matter so much to owners?

For most owners, the business is the biggest thing they own. The Exit Planning Institute puts it at about 80% of what the average owner has. Yet in its 2023 survey, 40% of owners had not had a formal value put on the business in the last two years.

Most owners only find out what the business is worth when they try to sell it. By then, there is little time to change the answer.

How we help owners get ready to sell

Altus Financial is a business coaching firm in Northampton, MA. Getting ready to sell is part of Transfer. It is one of the four areas we work in.

We work on the things buyers look at. In Discovery, we look at how much the business leans on you, how clean the books are, and what is written down. Then we help you fix it, one piece at a time.

We don't write legal papers or do your taxes. Your lawyer and CPA do.

Thinking about selling in the next few years? Book a Founders Call. It takes 20 to 30 minutes.