ValuationWindsor DrakeUpdated October 22, 2026
By Jeff Barrington, Managing Director
Short answer
Most businesses sell for a multiple of earnings. Owner-run businesses typically sell for 2 to 4 times SDE. In Q3 2026, BizBuySell reported 2.30x cash flow for businesses selling below $1 million and 3.73x above $1 million, with a median sale price of $350,000. Companies large enough to sell on adjusted EBITDA often start around four times and move higher with scale. GF Data reported an average of 7.0x for private equity deals in Q2 2026.
The Short Answer
Small businesses typically trade at 2 to 4 times SDE; in Q3 2026 BizBuySell reported averages of 2.30x cash flow for sales below $1 million and 3.73x above. Larger, lower-middle-market companies are valued on a multiple of adjusted EBITDA and command higher multiples as earnings scale, growth quality, recurring revenue, and a competitive process all push the number up. To understand where your business sits, start with the method that fits it. For the full mechanics, see our guide to business valuation methods for private companies.
Valuation Methods
Income-based
Values the business on its earnings, a multiple of profit, a discounted cash flow (DCF) that discounts future cash flows to today, or capitalization of earnings (expected annual earnings divided by a capitalization rate). Best for businesses with predictable profits.
Market-based
Compares your business to similar companies that sold recently in your industry and region. If comparable companies sold for around three times their annual earnings, that becomes a benchmark.
Asset-based
Adds up assets and subtracts liabilities: Business Value = Total Assets − Total Liabilities. Useful for asset-heavy businesses, a poor fit for service companies whose value lives in earnings.
In Practice
Income approach. A discounted cash flow runs in four steps: forecast free cash flow for five to ten years, choose a discount rate that reflects the risk of those cash flows, discount each year back to today, and add a terminal value for the years beyond the forecast. A multiple of SDE or EBITDA is the shorthand version of the same calculation, and it is how most private businesses are actually priced.
Market approach. A comparable is a business similar in revenue, industry, location, growth and margins. Sale data comes from business brokers, industry reports and transaction databases; BizBuySell publishes broker-reported US figures every quarter. True comparables are scarce for an unusual business, so most valuations pair comparable sales with an income method.
Asset approach. Book value uses the balance sheet at historical cost. Adjusted book value restates real estate, equipment and inventory at current market value. Either way the result is usually a floor rather than a price, because it leaves out the value of a profitable company’s customers and brand.
| Tangible assets | Intangible assets |
|---|---|
| Real estate | Customer lists |
| Equipment | Brand recognition |
| Inventory | Patents and trademarks |
| Cash | Software licenses |
The Metrics That Matter
EBITDA
Earnings before interest, taxes, depreciation, and amortization, the standard base for larger, established businesses. Buyers value adjusted EBITDA, normalized for owner add-backs and one-time items.
Seller’s discretionary earnings (SDE)
Net profit plus the owner’s salary and perks. The standard base for small, owner-operated businesses, which typically trade at 2 to 4 times SDE.
Revenue and recurring streams
Multiple, steady revenue streams and recurring contracts reduce risk and lift price. High-growth software is often valued on revenue rather than earnings.
Owner Earnings
SDE starts from net income and adds back what the current owner takes out of the business: net income plus owner salary and benefits, personal expenses run through the company, interest, taxes, and depreciation and amortization. The usual add-backs are:
Buyers accept add-backs they can verify against invoices, payroll records and tax returns. A buyer who has to hire a manager to replace the owner deducts that salary, so an add-back for owner pay is only as large as the gap between what the owner takes and what the role costs.
Industry Multiples
Technology and healthcare command premiums; retail and restaurants sit lower. Hot deal markets and abundant capital push multiples up, while higher rates and tighter credit push them down. These are benchmarks, not ceilings.
| Technology | 3.0 to 6.0 |
| Healthcare | 2.5 to 4.0 |
| Manufacturing | 2.5 to 3.5 |
| Retail | 2.0 to 2.8 |
| Restaurants | 1.5 to 2.5 |
Before You Go to Market
Organize your financials
Have at least two years of profit-and-loss statements, balance sheets, cash-flow statements, and tax returns, reconciled and backed by source documents.
Disclose debt fully
Buyers price what they can see. Document all short- and long-term debt; surprises in diligence cost value.
Reduce owner dependence
A business that runs without the owner is worth more. Build a management layer and document processes.
Improve before you market
Operational improvements, margin, concentration, recurring revenue, made before a sale raise both earnings and the multiple.
Brokers and advisors. Business brokers price, market confidentially, screen buyers, and manage negotiations, typically charging 5% to 12% of the sale price, with a minimum commission of $10,000 to $15,000 for smaller businesses. For larger companies, an M&A advisor runs a competitive process; the difference between a broker and an M&A advisor matters most above roughly $5M in value. Know what buyers look for before you start.
Before You List
Documents. Profit and loss statements for the past three to five years, balance sheets, tax returns for the last three years, cash flow statements, and accounts receivable and payable records. Reconcile the books to the tax returns before a buyer does; every difference will need an explanation.
What lifts the price. A management team that runs the business day to day, documented processes, recurring contracts, no single customer above about 20% of sales, and equipment and systems that will not need replacing soon.
Timing. List after a strong financial year, finish large contracts or launches first, avoid selling into a downturn, and check that buyers in your market can get financing.
FAQ
Annual profit and expenses, growth trends, the industry-standard multiple, company age, customer loyalty and concentration, the value of assets and intellectual property, and overall market conditions. Buyers look at multi-year trends, not a single year.
For an owner-run business, usually 2 to 4 times annual cash flow, so $200,000 of cash flow points to offers of roughly $400,000 to $800,000. In Q3 2026 BizBuySell reported a median sale price of $350,000, with averages of 2.30x cash flow below $1 million and 3.73x above. Larger companies sell on a multiple of adjusted EBITDA that rises with scale, growth and recurring revenue.
Higher and steadier revenue generally supports a higher price because it signals more durable earnings. Sharp swings or declining sales lower value; consistent growth raises it. Buyers examine several years of trend, not one snapshot.
Multiples of earnings, discounted cash flow, and asset-based valuation. Many small businesses are priced at 2 to 4 times SDE; larger or more complex companies use a blend of methods or a professional appraisal.
Online businesses are valued on traffic, digital revenue, scalability, subscription models, and digital assets, while brick-and-mortar businesses lean more on physical assets, local competition, and foot traffic.
A calculator gives a fast ballpark from your profit, expenses, debt, and growth rate, useful for early planning, but it is not a substitute for professional advice when the outcome is a real transaction.
Profit margins, total revenue, growth rate, cash flow, outstanding debt, earnings stability, customer concentration, efficiency, and recurring revenue.
Usually 2 to 4 times seller’s discretionary earnings. BizBuySell counted 2,132 small business sales in Q3 2026 at a median price of $350,000. Businesses selling above $1 million averaged 3.73x cash flow, and those below $1 million averaged 2.30x. Larger sales also closed nearer asking price, at 100.8% of asking above $1 million against 93.6% below.
It depends on size. Owner-run businesses are priced on SDE, typically at 2 to 4 times. Larger companies are priced on adjusted EBITDA. GF Data reported an average of 7.0x across 85 private equity deals in Q2 2026, and about 6.2x to 6.7x for deals of $10 million to $25 million in H1 2025. Public companies trade far higher, at 19.73x EV/EBITDA for the US market in January 2026 (NYU Stern), so they are a poor guide to a private sale.
On a multiple of profit. Asset-based value is a poor fit for a service company, whose value lives in its earnings. Owner-run service firms usually sell on SDE at 2 to 4 times. Larger firms sell on adjusted EBITDA, and GF Data reported business services deals at 7.5x trailing adjusted EBITDA in H1 2026, for companies of $10 million to $500 million in enterprise value. Recurring contracts and low client concentration lift the multiple.
On a multiple of adjusted EBITDA, or SDE for small owner-run firms, and usually below technology and healthcare. Windsor Drake’s August 2026 ranges put commercial and specialty construction at 3.0x to 4.5x for companies with $1 million to $3 million of EBITDA and 5.0x to 7.0x above $10 million. Logistics and 3PL run 3.5x to 5.0x and 5.5x to 7.5x. See EBITDA multiples by industry.
Higher margins raise the earnings a buyer pays a multiple of and often the multiple itself, because they show pricing power and cost control. Buyers look at margins over several years. Steady or rising margins support a higher price, and improving them before a sale is one of the few changes that moves both numbers.
Yes. A business that can add revenue without adding cost at the same rate sells at a higher multiple, which is why software and subscription businesses command premiums. Buyers pay for growth they can see a path to, such as a large market, recurring revenue and systems that can carry more volume without a rebuild.
Build the asking price from evidence a buyer can check: three years of clean financial statements, normalized owner expenses, the multiple your industry trades at and recent sales of similar businesses. The gap between asking and sale price narrows with size. In Q3 2026 BizBuySell reported that businesses above $1 million sold for 100.8% of asking on average, against 93.6% below $1 million.
Through business brokers, industry reports and transaction databases. BizBuySell publishes quarterly figures from broker-reported US sales: in Q3 2026, restaurants averaged 2.39x cash flow at a median price of $235,000, and manufacturing businesses averaged 3.02x at a median of $807,000. For an unusual business, most valuations combine comparable sales with an income-based method.
Windsor Drake advises founder-led companies on sell-side M&A. A first conversation is confidential and starts with your numbers.
General information, not legal, tax or investment advice. Every transaction turns on its own facts and documents. Windsor Drake is not a registered broker-dealer and does not offer, sell or place securities. When a transaction requires a registered broker-dealer, that work is handled by a registered broker-dealer partner.
