How small businesses actually get valued
SDE, not revenue. Buyers of Main Street businesses (roughly under a few million in sales) pay for cash flow. Seller's Discretionary Earnings is net profit plus the owner's salary plus legitimate add-backs: personal expenses run through the business, one-time costs, interest, and depreciation. A business with $1 million in revenue and $80,000 of SDE is worth far less than one with $500,000 in revenue and $200,000 of SDE.
The multiple. Most small businesses sell somewhere around 1.5 to 3.5 times SDE. Where you land depends on a few things buyers always ask about:
- Owner dependence. If customers call you by name and you do the work, a buyer is paying for a job, not a business. Training a lead tech or manager before selling is often worth more than any other change.
- Recurring revenue. Maintenance plans, service contracts, and route-based work (pest, pool, HVAC agreements) raise the multiple.
- Clean books. Three years of tax returns that match your P&L. Cash you didn't report doesn't count, because a buyer's lender won't count it.
- Customer concentration. If one customer is a third of your revenue, expect a discount.
- Lease. A short or unassignable lease scares buyers and lenders.
How buyers pay
Many small business purchases use an SBA 7(a) loan, which often lets a qualified buyer put down around 10% of the price. Lenders look hard at the cash flow on your tax returns and whether it covers the loan. Sellers are commonly asked to carry a small note or stay on for a transition period. Knowing this ahead of time helps you price realistically.
Brokers, and when you need one
A business broker finds and screens buyers, keeps the sale confidential, and manages the deal through closing. For small deals, broker fees are often around 10% of the sale price, paid at closing, and they're negotiable. Ask any broker:
- How many businesses like mine have you sold in the last two years?
- How do you value it, and will you show me comparable sales?
- How long is the listing agreement, and what happens if I find the buyer myself?
- How do you keep it confidential from employees and customers?
California business brokers selling businesses that include real estate need a real estate license; check a broker's license at the DRE lookup. Many also belong to the California Association of Business Brokers.
Not ready to sell?
That's fine. Use the calculator as a checkup. Run it once a year, and work on the levers above: get your books clean, write down how things are done, and build recurring revenue. That's how owners get more when the day comes, whether you sell in two years or ten.
Town guides
Questions
Are you a business broker?
No. We're a free matching service. We don't buy, sell, or appraise businesses. With your consent we pass your request to up to 3 local brokers or advisors.
Is this a formal valuation?
No. It's an educational estimate using common SDE multiples. A formal valuation or broker opinion looks at your actual financials, market, and comparable sales.
Is my information kept private?
We share your request only if you check the consent box, and only with up to 3 brokers or advisors. Don't put sensitive financial documents in the form.
What is SDE?
Seller's Discretionary Earnings: net profit plus the owner's salary plus legitimate add-backs like one-time expenses and personal costs run through the business.
Which areas do you cover?
San Diego County, including Escondido, Oceanside, Chula Vista, El Cajon, and Carlsbad.