What are seller's discretionary earnings?

What the business earns its owner: profit, with the owner's own pay, interest, depreciation and one-time costs added back. It's the standard measure for valuing small businesses sold to individual buyers.

What is my business worth?

Most small businesses sell for a multiple of what they earn their owner. Enter last year's numbers and your industry to see a starting range for what your company is worth.

Industry Last 12 months' profit

Net profit from the profit and loss statement, before income tax. What the business paid you

Your salary or owner's pay. A buyer would replace it with their own pay or a manager's, so it's added back. Interest, depreciation and one-time costs

Loan interest, depreciation, and costs that won't repeat, such as a lawsuit or a one-time move. Cash the business holds

Loans the business owes

Estimated value

Seller's discretionary earnings$0

Times a multiple of0

Value of the operations$0

Plus cash$0

Less loans$0

Estimated value$0

Rule-of-thumb multiples for small companies sold to individual buyers. A starting range, not an appraisal. A company that mainly holds property is usually worth its net assets instead: what the property would sell for, less what's owed on it.

How the calculation works

Small businesses are usually valued on seller's discretionary earnings: the profit, with the owner's pay, interest, depreciation and one-time costs added back. That's what the business would earn a new owner who runs it.

Buyers pay a multiple of those earnings that depends on the industry, how steady the earnings are, and how much the business relies on its owner. The calculator uses a typical range for your industry and shows the middle as its estimate. Cash the business holds is added, and loans it owes are subtracted.

Common questions

What multiple do small businesses sell for?

Most small businesses sold to individual buyers sell for roughly 1.5 to 3.5 times seller's discretionary earnings. Steady earnings, recurring customers and a business that runs without the owner push toward the top; a business that depends on one person or one customer pushes toward the bottom.

What raises a business's value?

Clean, closed books a buyer can trust, earnings that grow or hold steady, customers spread across many accounts, and a team that runs the work without you. Owners who plan to sell often spend two or three years building these.

Is this an appraisal?

No. It's a starting range from rules of thumb. A sale, a partner buyout, an estate or a loan usually needs a formal appraisal from a qualified business appraiser.

Why does my business's value matter if I'm not selling?

It's often the largest part of an owner's net worth. It matters for estate planning, for a buy-sell agreement with a partner, for life insurance needs, and for knowing whether your family's plans are on track.

See what each of your companies is worth, from its own books

Cratchit works out each company's value from its real profit, cash and loans, keeps it current as the books change, and counts it in your family's net worth. Take a guided tour with the Harpers, a sample family.

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Education, not advice. For a sale, buyout, estate or loan, get a formal appraisal.