What Is My Business Worth? Why the Online Calculator, Your Accountant and Your Family All Give Different Numbers

The short answer: most owner-run businesses sell for roughly two to five times their seller’s discretionary earnings (SDE), the cash flow left for an owner who works in the business. Where you land in that range depends on how large, stable and predictable that cash flow is, and on risks a calculator cannot see. The final number is what a qualified buyer will actually pay.

If you want to see a range for your own business without sending anything, start with the Vanla Exit Readout.

Three numbers, and none of them agree

This is the most common question we hear from owners, and it almost always arrives the same way. An online form gave one number. The accountant gave a different one. The family has a third number in mind, usually the biggest. Which one is right?

Usually none of them, and each is wrong for a different reason:

• The online calculator multiplies your income, or worse, your revenue, by an industry average. It has never seen your business.
• The accountant’s number is often built for taxes or the balance sheet. Tax returns are designed to show as little profit as legally possible, which is the opposite of what you want a buyer to see.
• The family number tends to come from years of sacrifice, what the business feels like it should be worth, or what you need to retire. Buyers do not price any of those.

Buyers are thinking about one thing: future cash flow, judged by your historical numbers. Not potential, not effort, not top line. Once you see the math they use, the three numbers stop being confusing.

How buyers actually get to a price

The method is simpler than most owners expect. It runs in three steps.

Step 1: Start with net income

Take net income from your P&L or tax return. This is the number that usually depresses owners, because it has been minimized for taxes.

Step 2: Add back to get SDE

Seller’s discretionary earnings (SDE) is the total cash flow available to one owner who works in the business. To get there, add back:

• The owner’s salary and benefits
• Personal expenses run through the business: vehicles, travel, meals, phones
• One-time costs that will not repeat: a lawsuit, a one-off consulting project, a major repair
• Interest, depreciation and amortization

Everyone runs some personal expenses through the business, so do not be embarrassed by them. Two cautions: small recurring items usually do not survive a buyer’s review, and every add-back has to be documented with bank and credit card statements. A claimed add-back without paper behind it is just a story.

Step 3: Apply a market multiple

For owner-run businesses, the multiple is usually two to five times SDE. A small business with unpredictable earnings may get one or two times. The larger, more stable and more predictable the cash flow, the higher you go. Multiples have also come down as the cost of capital has gone up, so a number someone got several years ago may not hold today.

An illustrative example

These numbers are made up to show the math. They are not a real client.

Picture an owner-run service business with $3.2M in revenue. Here is how the three outside numbers might look:

• An online calculator applies an average revenue multiple and says about $2.5M.
• The family assumes “two years of revenue” and says $6.4M.
• The tax return shows $210,000 in net income, which feels like almost nothing.

Now the buyer’s math:

At two and a half to three and a half times SDE, this business would likely price somewhere between $1.2M and $1.7M. That is well above what the net income suggested, below what the calculator suggested, and nowhere near the family number. Where it lands inside that range depends on the risks covered below.

That reset is a conversation we have often. One owner of a small specialty services business came in certain his company was worth two years of revenue. A five-minute walk through cash flow times a realistic multiple changed his expectation on the call, and he left still keen to sell, now with a number a buyer could actually pay.

Revenue is not the indicator

The most common misconception we hear is that businesses sell for a multiple of revenue. They sell on cash flow.

A business turning over millions with almost no profit is worth less than one with a fraction of that revenue where half of it falls to the bottom line. Bigger revenue does not automatically mean a bigger multiple either. Margin and predictability drive the multiple, not top line.

Some owners deliberately drop a high-volume, low-margin line before going to market. Revenue falls, but the business can become more valuable, because the earnings that remained were better and more predictable. Less volume meant less complexity and fewer things that could go wrong.

There are exceptions. Some software and technology businesses growing fast are valued on revenue (see our SaaS and IT business valuation guide). For most operating businesses, cash flow is the number that matters.

SDE vs EBITDA: why bigger businesses look like they trade richer

Once a business is large enough to have a manager running it, buyers switch from SDE to EBITDA (earnings before interest, taxes, depreciation and amortization).

• SDE is the cash flow to an owner who works in the business.
• EBITDA is the investment term for a business with a manager in place.

Using the example above: if a buyer has to hire a general manager at $130,000 to replace the owner, that salary comes out. EBITDA would be about $350,000. The number drops, but buyers apply a higher multiple to EBITDA, because the business no longer depends on one person. That is why larger businesses can appear to sell at richer multiples. Often it is the same cash flow, measured a different way.

For how EBITDA multiples change with deal size, see EBITDA multiples by deal size. The IBBA Market Pulse Report also tracks sale multiples across the Main Street and lower-middle markets each quarter.

The three things online calculators ignore

Online calculators are useful for one thing: telling you whether you are in the wrong order of magnitude. They apply a multiple to income and stop there. They cannot see the three things buyers spend most of their time on.

1. Location

Where the business operates changes who can buy it, what labor costs, what a lease is worth and how much demand there is for the service. Two businesses with identical SDE in different markets can attract very different buyers.

2. Competition

A buyer wants to know what stops a competitor from taking your customers the day after closing. Contracts, reputation, licenses, specialized equipment and relationships all count. A calculator assumes you are average for your industry.

3. Risk

This is where the multiple is really set. Buyers ask:

• Customer concentration: does one customer drive a large share of revenue?
• Owner dependence: does the business run without you, or are you the business?
• Predictability: are earnings steady year over year, or lumpy and project-based?
• Documentation: can every add-back and every major number be proven?
• Contracts: is there signed, guaranteed work, or does revenue have to be won again every month?

Each of these moves a buyer toward the top or the bottom of the range. Many are fixable with time, which is why it pays to understand your number well before you plan to sell. For a side-by-side look at what calculators miss, see What Online Business Valuation Calculators Miss.

What does not set the price

Two things owners often expect to count do not count the way they hope.

Years in business and a loyal customer base make you more attractive and can widen the pool of buyers. A signed contract with guaranteed work adds real value. But on their own, they are not a line in the price.

What you need to retire is not an input at all. It is a hard conversation, and a necessary one. If the number you need is above what the business can support, it is better to learn that early, while there is still time to grow the cash flow that buyers pay for.

A business is worth what someone will pay

Every method above produces a range, not a price. The price is set when a qualified buyer, with financing in place, agrees to pay it.

That is why the most useful thing you can do is replace the three conflicting numbers with one grounded range: your real SDE or EBITDA, a multiple that fits your size and stability, and an honest read on the risks a buyer will price. If the gap between that range and the number in your head is large, the answer is rarely to argue with the market. Buyers are not thinking about what you put in. They are thinking about future cash flow. Keep growing it.

And when it is time to sell, how the sale is run matters too. A confidential process that puts your business in front of several qualified buyers at once gives you the best chance of reaching the top of your range. See How to Sell Your Business Confidentially for how that works. The Vanla team has closed $182M+ in transactions for owners of lower-middle-market businesses, and the first step is always the same: an honest number.

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