Business EBITDA multiple valuation

Inputs

Annual revenue	$2,400,000
Annual EBITDA	$450,000
Owner comp addback (above-market)	$80,000
Non-operating expenses (one-time)	$25,000
Low end of multiple	3
High end of multiple	5

Supporting metrics

Low end valuation	$1,665,000
High end valuation	$2,775,000
SDE (Seller's Discretionary Earnings)	$555,000

About this calculator

How small businesses are actually valued

Main Street businesses (under $5M revenue) are valued on Seller's Discretionary Earnings (SDE), not EBITDA. SDE adds back: owner's above-market salary, owner perks, and one-time expenses. The multiple applied is industry-specific.

SDE math

SDE = EBITDA + owner comp addback + non-operating one-times
sale price = SDE × industry multiple

Owner of a $2.4M revenue agency draws $200k while market wage for same work would be $120k → addback of $80k. EBITDA $450k + $80k addback + $25k one-times = SDE of $555k.

Industry multiples (rough recent)

HVAC / plumbing: 2.5-3.5× SDE
Property management: 3-4× SDE
Digital marketing agency: 3-4.5× SDE
SaaS (under $1M ARR): 3-6× ARR (different metric, not SDE)
SaaS (over $1M ARR): 5-10× ARR
Insurance brokerage: 5-7× EBITDA
Medical practice (specialty): 3-7× EBITDA depending on lifestyle vs scale

Where multiples expand

Predictable contracted revenue (multi-year contracts, retainers): +0.5-1.0× multiple
Owner-independent operations (no key-person risk): +0.5× multiple
Growth trajectory (3-year YoY revenue growth): +0.5-1.5× multiple
Niche moat (specialized customer base, regulatory barrier): +0.5× multiple

Where multiples compress

Customer concentration (top customer >25% of revenue): -0.5-1.0×
Heavy competition / commoditized service: -0.5×
Owner-dependent operations: -0.5-1.0× (this is the biggest cut for owner-operators)
Declining revenue or margin trend: -0.5-1.5×

FAQ

What's the difference between EBITDA and SDE?

EBITDA = pre-interest, pre-tax, pre-D&A earnings — meaningful for any business. SDE = EBITDA + owner-related addbacks (comp adjustment, perks, family salaries). SDE is for small businesses where owner comp dominates the cost structure. Larger businesses (>$5-10M revenue) usually report on EBITDA only because owner comp is replaceable.

Should I add back depreciation?

EBITDA already excludes depreciation/amortization, so no need to re-add. CAUTION: capex-heavy businesses (manufacturing, fleet vehicles) often need a 'Maintenance CapEx' subtraction from SDE/EBITDA to get to true free cash flow. Buyers will discount valuation by ~5x maintenance capex requirement.

What's the working capital adjustment?

At closing, buyer wants to inherit normal working capital (3-6 months operating WC). Calculation: trailing-12-month average WC vs WC at closing. If actual is below average, seller pays the difference at close. If above, buyer pays seller. Always negotiate working capital target as part of LOI — surprise WC settlements at close kill deals.