What is my business actually worth? A plain-English guide for owner-operated businesses

Most owners either never think about what the business is worth, or carry a number in their head that no buyer would pay. Here is how buyers of small businesses actually arrive at a price, in plain English.

Buyers do not buy revenue, they buy profit a new owner can keep

For an owner-operated business (a salon, cafe, clinic, gym, small agency), the starting point is almost never revenue. It is Seller's Discretionary Earnings, or SDE: the total financial benefit one owner-operator takes from the business in a year. Roughly, that is your pre-tax profit, plus your own salary, plus perks and one-off costs a new owner would not have to pay (add-backs).

A business turning over 400,000 with an SDE of 90,000 is, to a buyer, a 90,000-a-year machine. That is the number everything else multiplies.

The multiple: where the price really gets decided

The price is SDE times a multiple. For main-street businesses the commonly quoted range is roughly 1.5x to 3.5x SDE, with most sales landing somewhere in the middle. Where you land inside that range is not luck. It is a short list of factors buyers price in:

• Owner dependence. If the business is you, the buyer is not buying a business, they are buying your job. This is the single biggest discount. See owner dependence.
• Provable books. Numbers a stranger can verify. Cash that never hit the books does not exist at the negotiating table. More in clean books.
• Recurring revenue. Memberships, retainers, and subscriptions get priced above walk-in revenue because they transfer with the business. See recurring revenue.
• Transferability. A lease that can move to a new owner, licences that transfer, a brand you actually own, systems written down. See transferability.
• Customer concentration. If a few clients are most of the revenue, the buyer discounts for the risk they leave. See client concentration.

Do the rough math on your own numbers

Take your honest SDE and multiply it by 1.5 and by 3.5. That spread, often a difference of two or three years of profit, is what the factors above decide. Our free business valuation calculator does this arithmetic for you by industry and shows which factors push you toward each end.

Two honest warnings. First, an online estimate is not an appraisal; a real price needs a real buyer and real diligence. Second, the range only applies to a business a buyer can actually take over. A business that cannot run without its owner often has no market price at all, which is why most listed businesses never sell.

What actually moves the number

The encouraging part: every factor on the list is workable. Documenting how the business runs, moving clients to memberships, getting the books provable, and stepping out of daily operations are not abstract virtues. Each one moves a real multiple on a real SDE, which for many owner-operated businesses is worth more than a year of grinding for growth.

If you want the honest starting picture on your own business, the exit readiness score takes two minutes and tells you which factor is capping your price today.