If you need one sentence: a small business is typically worth a multiple of its seller's discretionary earnings (SDE) — most owner-operated companies sell for between 2× and 4× SDE, with the exact multiple set by industry, size, and deal quality. Across the 9,586 US small-business sales recorded by BizBuySell in 2025, the average was 2.61× cash flow; by Q1 2026 it had edged up to 2.7×, on a median sale price of $350,000.
Everything else in business valuation is about earning a multiple at the top of your industry's range instead of the bottom.
Step 1 — find the earnings number buyers actually price
Buyers don't pay for revenue, and they don't pay for the net profit on your tax return. For owner-operated businesses they price SDE: pre-tax profit, plus your salary and benefits, plus interest, depreciation and genuinely one-off costs.
| Line | Example |
|---|---|
| Net profit (books) | $120,000 |
| + Owner's salary & CPF/benefits | $90,000 |
| + Interest & depreciation | $25,000 |
| + One-off legal dispute | $15,000 |
| SDE | $250,000 |
Larger businesses with a management team are priced on EBITDA instead, and the multiple scale changes — SDE vs EBITDA explains when each applies.
Step 2 — apply your industry's multiple band
Industry moves the multiple more than any other single factor, because it encodes risk and transferability. Some current reference points:
- US Main Street average: 2.7× cash flow (BizBuySell Insight, Q1 2026)
- Smaller SaaS on Flippa: 2.5–4.5× profit (Flippa 2026 multiples data)
- Singapore SMEs: roughly 1.5–5× SDE depending on industry — F&B at 1.5–2.5×, healthcare clinics at 3–5× (full table by industry)
So the $250K-SDE business above is probably worth $500K–$1M before quality adjustments — a wide range, which is the point: the band is where valuation starts, not where it ends.
Step 3 — let quality move you inside (or outside) the band
In the GradeThisDeal methodology, quality factors adjust the multiple itself, not just a score: recurring revenue, customer diversification, owner independence, clean books, and remaining growth headroom each shift the fair multiple up or down. A café where the owner-chef is the product sits at the bottom of the F&B band; the same P&L with a salaried head chef and documented recipes sits near the top. We've seen this play out in real listings — in our review of a $1.3M car-hauling business, every undisclosed quality factor priced as a conservative assumption against the deal.
As a rule of thumb from the engine's calibration: the spread between a bottom-of-band and top-of-band business in the same industry is regularly ±25% of enterprise value — more than most owners spend years of effort to add in earnings.
Step 4 — sanity-check against the asset floor and a buyer's financing
Two checks catch most mispricing:
- Net asset floor. A business isn't worth less than its orderly net asset value. If the multiple math lands below NAV, the assets set the price.
- Debt service. A US buyer at 90% SBA 7(a) leverage needs cash flow to cover loan payments by at least ~1.25×, realistically 1.5× (DSCR explained). If the asking price can't be financed by a typical buyer, it usually doesn't clear the market at that price.
Put a number on yours in two minutes
The free GradeThisDeal calculator runs this whole method — market-calibrated band, quality adjustments, NAV floor, financing math and a Monte-Carlo fair-value range — from about six inputs, free and without sign-up. If you'd rather browse the reference data first, start with valuation multiples by industry.
GradeThisDeal is a screening tool, not a formal valuation or financial advice. Bands carry last-verified dates — check them against primary sources before relying on a figure.