How to calculate the selling price of a small business?

The selling price of a small business is usually calculated by applying a market-based multiple to its earnings, then checking that figure against an asset value floor and comparable sales.

Start with earnings, not revenue. Take net profit and add back owner salary, personal benefits, interest, taxes, depreciation, and one-time expenses. For owner-operated businesses this is called Seller's Discretionary Earnings (SDE); larger companies with outside management typically use EBITDA instead. This adjusted earnings figure represents what a buyer could realistically expect to earn after taking over.

Apply an industry multiple. Multiply SDE or EBITDA by a multiple appropriate to the industry, size, and risk profile of the business. Smaller owner-operated businesses often sell in the 2x to 4x SDE range, while larger businesses with EBITDA can command higher multiples. A business with $150,000 in SDE and a 3x multiple, for example, would price around $450,000. Factors like recurring revenue, low owner dependence, customer diversification, and clean financial records tend to push the multiple higher.

Confirm against an asset floor and comparables. Add up the fair market value of equipment, inventory, and other assets, subtract liabilities, and use that as a minimum baseline, particularly for asset-heavy operations. Comparing the earnings-based number against recent sales of similar businesses helps confirm the price is realistic rather than theoretical.

A defensible selling price comes from triangulating these approaches rather than relying on a single formula. Because multiples and adjustments vary widely by industry and circumstance, an independent business valuation applies recognized methodology (income, market, and asset-based approaches) and produces a report prepared in accordance with USPAP, giving owners, buyers, and lenders confidence in the number. For a related question, see whether a business is worth three times profit.