Business EBITDA multiple valuation

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×