How do I calculate what my business is worth?

The most common method for small businesses is a multiple of earnings. Take your annual owner benefit (SDE) or EBITDA and multiply it by an industry-appropriate multiple, typically ranging from 2x to 7x for businesses between $250K and $20M in revenue. The specific multiple depends on your industry, the strength of your intangible capital (team, customers, systems, culture), and current market conditions. For a formal valuation, work with a certified business appraiser.

What is a good EBITDA multiple for a small business?

For small private businesses, EBITDA multiples typically range from 2.5x to 6x, depending on industry, size, growth rate, and risk profile. Service businesses often fall in the 3x to 5x range. Healthcare, IT, and SaaS companies can command 5x to 8x. The multiple reflects how transferable and predictable your earnings are. Businesses with strong intangible capital command the top of their range.

What is SDE vs. EBITDA?

SDE (Seller's Discretionary Earnings) includes the owner's salary and benefits on top of EBITDA. It's the standard metric for businesses where the owner is actively involved and earns below about $1M in total earnings. EBITDA is more commonly used for larger businesses or those with professional management already in place. Both represent the true economic benefit of owning the business.

Why is my business worth less than I expected?

The most common reasons are owner dependency (the business can't function without you), customer concentration (too much revenue from too few clients), lack of recurring revenue, undocumented processes, and messy or unclear financials. These are all fixable. A focused value acceleration engagement can address the highest-impact gaps in 12 to 24 months.

Can I increase my business value before selling?

Yes. That's exactly what value acceleration is. By systematically improving your 4 C's (Human, Customer, Structural, and Social Capital) and the 8 Drivers of Business Value, you can meaningfully increase your multiple and your earnings simultaneously. Most founders who commit to this process for 18 to 24 months see significant improvement in both their valuation and their quality of life as an owner.

What is the difference between a business valuation and a business appraisal?

In common usage, they're often interchangeable. Technically, a "business appraisal" typically refers to a formal, certified valuation conducted by a credentialed appraiser (ASA, ABV, or CVA) following established standards. A "business valuation" can be more informal, such as a broker's opinion of value or a multiple-based estimate. For legal, tax, or estate planning purposes, you need a formal appraisal. For strategic planning and exit readiness, a value assessment focused on drivers and improvement areas is often more useful.

What Is My Business Actually Worth?

A founder's honest guide to business valuation.

Every founder has a number in their head. The problem is that the number is almost never based on how buyers actually value businesses.

Buyers care about one thing: what the business's future cash flows are and how risky they are.

This guide breaks down how business valuation really works for founder-led companies, what drives your multiple up or down, and where most owners get the math wrong. At the bottom, you'll find a free estimator tool that gives you a rough range based on your industry and how your business stacks up on the four types of intangible capital that drive 80% of business value.

How Business Valuation Actually Works

The basic formula for valuing a small business is deceptively simple:

Business Value = Earnings × Industry Multiple

Earnings is typically measured as Seller's Discretionary Earnings (SDE) for businesses under $1M in earnings, or EBITDA (earnings before interest, taxes, depreciation, and amortization) for larger companies. This represents the true economic benefit of owning the business.

The multiple is where everything gets interesting. It's the number that reflects how much a buyer is willing to pay per dollar of earnings. A 3x multiple means a buyer pays $3 for every $1 of annual earnings. A 5x multiple means they pay $5.

Two businesses in the same industry with the same revenue can have wildly different multiples. The difference comes down to risk and transferability. A business that runs without its owner, has diversified customers, documented systems, and a strong team will always command a higher multiple than one held together by the founder's willpower.

What Drives Your Multiple Up (or Down)

Your industry sets the baseline. But within any industry, the range between a low multiple and a high multiple can be 2x or more.

The Exit Planning Institute identifies four types of intangible capital, called the 4 C's, that account for roughly 80% of a business's total value. These are the levers that move your multiple within your industry range:

Human Capital

The strength of your team's talent, skills, and ability to execute without the owner. Can your business run if you disappear for 90 days? Do you have a leadership bench? Are key roles documented and delegable? Strong human capital means the business isn't a job disguised as a company.

Customer Capital

The depth and quality of your customer relationships. How diversified is your revenue across customers? Do you have long-term contracts or recurring agreements? Is your customer acquisition system repeatable, or does it depend on the founder's personal network? Customer concentration is the single fastest way to kill a deal.

Structural Capital

The strength of your strategy, systems, processes, and financial structure. Are your operations documented in SOPs? Is your financial reporting clean and current? Do you have scalable systems that a new owner could step into? Structural capital is what makes a business transferable instead of just profitable.

Social Capital

The strength of your company culture and brand. How does your team communicate? What do they believe in? How do customers perceive you in the market? Social capital is the hardest to build and the hardest to transfer. It's the glue that holds the other three together.

A business that scores "best in class" across all four capitals will command the top of its industry's multiple range. A business that's weak across all four will sit at the bottom, and may not be sellable at all.

The good news: every one of these capitals is measurable and improvable. That's the entire point of value acceleration.

The Math Most Owners Get Wrong

80%

of a business's value comes from intangible capital. Not revenue. Not equipment. Not the building.

Most founders anchor their valuation expectations to revenue. "We do $3 million, so we're worth $3 million." That's not how it works. A buyer is buying future earnings, adjusted for risk.

If your $3 million in revenue produces $300K in owner benefit and the business depends entirely on you, you're looking at a 2x multiple on $300K. That's $600,000. Before taxes.

Alternatively, if that same $3M revenue business has $500K in owner benefit, diversified customers, documented systems, a strong management team, and recurring revenue, you might be looking at a 5x multiple. That's $2.5 million.

"Average" Business

$3M Revenue
$300K Owner Benefit
Owner-dependent, concentrated customers, no SOPs

Multiple: 2x

$600,000

"Best in Class" Business

$3M Revenue
$500K Owner Benefit
Strong team, diversified, documented, recurring revenue

Multiple: 5x

$2,500,000

Same industry. Same revenue. A $1.9 million gap. That gap is the 4 C's at work. It's also the gap that value acceleration is designed to close.

Estimate Your Business Value

Use this tool to get a rough valuation range for your business. Select your industry, enter your annual earnings, then rate your business across the 4 C's of Intangible Capital. Your ratings adjust where your multiple falls within your industry's range.

Select Your Industry

Annual Owner Benefit / SDE / EBITDA

Your total annual earnings including salary, benefits, and add-backs. If you're not sure, use your annual salary + net profit before taxes.

Rate Your Intangible Capital

Be honest. These ratings determine where your multiple falls within your industry's range.

Human Capital3/5

How strong is your team's ability to run the business without you?

Owner does everythingCapable team, still need ownerRuns independently 90+ days

Customer Capital3/5

How diversified and sticky are your customer relationships?

Top client 40%+ revenue, no contractsModerate diversification, some recurringHighly diversified, 80%+ recurring

Structural Capital3/5

How documented and scalable are your systems and processes?

Nothing documented, tribal knowledgeKey processes documentedFull SOPs, due diligence ready

Social Capital3/5

How strong is your culture, brand, and market position?

No brand, high turnoverDecent reputation, stable teamStrong brand, culture is competitive advantage

Enter your details to see an estimated range

Important Disclaimers

This tool provides a rough, illustrative estimate only. It is not a formal business valuation, business appraisal, or offer to purchase. Do not use this estimate for any legal, tax, financial planning, or transactional purpose.

Actual business valuations depend on dozens of factors not captured here, including but not limited to: detailed financial analysis and normalization of earnings, specific buyer motivations and market conditions at time of sale, deal structure (asset sale vs. stock sale, earnouts, seller financing), working capital requirements and capital expenditure needs, legal and regulatory considerations, quality of earnings analysis, customer contract terms and transferability, real estate and lease considerations, intellectual property and proprietary assets, tax implications for both buyer and seller, and current debt and lien obligations.

The industry multiples used in this tool are derived from publicly available data on public company transactions and have been adjusted downward to approximate ranges for small private businesses. Public company multiples are consistently higher than private company transaction multiples due to liquidity premiums, scale, and other factors. Your actual transaction multiple may differ significantly.

The 4 C's framework (Human, Customer, Structural, and Social Capital) is based on the Exit Planning Institute's Value Acceleration Methodology. The self-assessment ratings in this tool reflect your own perception and have not been independently verified.

This tool is provided by Diffactory for educational purposes only. Diffactory is not a licensed business appraiser. For a formal valuation, consult a certified business appraiser (ASA, ABV, or CVA designation). For a comprehensive analysis of your business's value drivers and areas for improvement, take the free Value Builder Assessment.

Want the Real Picture?

This calculator gives you a starting point. The Value Builder Assessment gives you a roadmap. Score your business across all 8 Drivers of Business Value in about 15 minutes and get a detailed report showing exactly where to focus.

Because you can't fix what you won't look at.

Take the Free Value Builder Assessment

Why Revenue Is Not Value

This is the mistake that costs founders the most money. They anchor to their top-line revenue and assume the business is worth some percentage of it.

Revenue tells you the size of the business. It tells you nothing about the quality. A $5 million company with 3% net margins, one major customer, and an owner who works 70 hours a week is not the same as a $5 million company with 20% margins, diversified revenue, and a management team running daily operations.

Buyers pay for transferable profit, not revenue. More specifically, they pay for the likelihood that those profits will continue and grow after the founder leaves.

That's why two businesses with identical revenue can be valued $2 million apart. The difference is always in the quality of earnings and the intangible capital underneath them.

The Valuation Conversation You Should Be Having

Most founders ask, "What is my business worth?" That's the wrong first question.

The right question is: "What do I need my business to be worth, and what would it take to get there?"

That reframe changes everything. Instead of reacting to a number you don't like, you're building toward a number that funds your future. That's the difference between a business valuation and a value acceleration plan.

The three questions every founder should be able to answer:

What is my business worth today?
What does it need to be worth to fund my next chapter?
What specific actions will close that gap in 12 to 36 months?

If you can answer all three, you have a plan. If you can't, you have a hope. And hope is not a strategy.

Frequently Asked Questions

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