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The Question Every Business Owner Needs to Answer
Whether you're planning your exit strategy or considering an acquisition, there's one question that keeps business owners awake at night: "What's my business actually worth?" I've been helping business owners answer this question for years, and I can tell you that most people get it wrong—sometimes by hundreds of thousands of dollars.
The problem isn't that business valuation is rocket science. It's that most owners rely on outdated rules of thumb, emotional attachments, or wishful thinking instead of current market data and proven methodologies. As a Licensed Business Broker, I use three core valuation approaches that actually reflect how buyers and lenders think in today's market: SDE multiples, market comparables, and asset-based valuations.
Let me walk you through each method and show you how I use them to protect your interests—whether you're selling or buying.
SDE Multiples: The Foundation of Small Business Valuations
What is SDE and Why It Matters
Seller's Discretionary Earnings (SDE) is the true measure of what a full-time owner-operator can pull from the business. Unlike EBITDA, which works for larger companies with management teams, SDE captures the total financial benefit to you as the owner.
Here's how I calculate SDE: I start with your net profit, then add back your salary, owner perks (like that company car), non-recurring expenses (one-time legal fees, equipment repairs), and non-cash charges like depreciation. This gives us the real cash flow that matters to buyers and SBA lenders.
Real Example: A service business shows $75,000 net profit on tax returns. After adding back the owner's $120,000 salary, $8,000 in owner health insurance, $15,000 in non-recurring moving costs, and $12,000 depreciation, the true SDE is $230,000. That's a massive difference that directly impacts your business value.
Current Market Multiples by Industry
Based on five years of BizBuySell transaction data, here's what businesses are actually selling for in 2025:
Industry | Average SDE Multiple | Why This Multiple? |
|---|---|---|
Car Washes | 4.93x | Passive income, loyal customers, high barriers to entry |
Assisted Living | 4.50x | Steady demand, recurring revenue, licensed operations |
Laundromats | 3.46x | Cash business, minimal staffing, recession-resistant |
Liquor Stores | 3.17x | Licensed barrier, steady demand, inventory turns |
Auto Repair | 2.82x | Local market, skilled labor dependency |
Restaurants | 2.10x | High owner dependence, labor intensive, variable income |
These multiples aren't random—they reflect what I call "Company-Specific Risk" (CSR). Lower risk means higher multiples. When I evaluate your business, I look at factors like owner dependence, customer concentration, staff depth, and transferability of operations to determine where you fall within your industry range.
Market Comparables: What's Really Happening in 2025
Current Market Reality
The market has shifted significantly in 2025, and understanding these changes is crucial for realistic pricing:
Median sale price: $352,000 (down 6% from 2024)
Total transactions: 2,342 in Q2 2025 (down 4% year-over-year)
Time on market: Up 12 days compared to last year
Size premium effect: Sub-$500K deals averaging 2.3x SDE vs. $5M-$50M deals at 5.5x SDE
The biggest game-changer? New SBA lending rules that took effect June 1st. Lenders are now more strict about debt service coverage ratios, seller notes are limited to 50% of buyer equity and must be on full standby, and underwriting timelines have extended. This means deal structure is more important than ever.
How I Use Market Comps
I don't just pull random "comps" from the internet. I use three reliable sources:
Business Brokers of Florida data: MLS of Businesses.
BizBuySell industry data: Real transaction multiples by sector, updated quarterly
Business Reference Guide: Industry-specific rules of thumb with operational benchmarks
Local market intelligence: Recent deals in your geographic area and sector
The key is adjusting these benchmarks for your specific situation. A restaurant in a prime location with trained staff and diversified revenue streams will command a premium over the 2.10x industry average. A restaurant dependent on the owner's recipes and relationships might price below it.
Asset-Based Valuation: When the Balance Sheet Matters
Not every business should be valued primarily on earnings. Asset-based approaches make sense when:
The business is asset-heavy (manufacturing, distribution)
Earnings are inconsistent or not transferable to a new owner
You're dealing with a holding company or investment entity
The business is distressed but has valuable assets
For SBA-financed deals, asset allocation becomes critical. When the loan amount minus appraised real estate and equipment exceeds $250,000, lenders require an independent business valuation from a qualified appraiser. I structure my analysis to meet these requirements upfront, preventing delays at closing.
How My Valuation Process Protects Your Interests
For Sellers: Maximizing Your Exit Value
Before we set an asking price, I'll recast your financials to show true SDE, benchmark your business against current market comparables in your exact niche, and produce an SBA-ready valuation package. This approach delivers three key benefits:
Evidence-based pricing: Your price is anchored to market data, not wishful thinking
Broader buyer pool: SBA-ready packages attract more qualified buyers
Fewer renegotiations: Transparent financials reduce surprises during due diligence
For Buyers: Avoiding Costly Mistakes
I'll validate the seller's SDE calculation, scrutinize add-backs for legitimacy, and map company-specific risks to the asking multiple. We'll also pre-test SBA financing feasibility—debt service coverage ratio, equity requirements, and seller note limitations—so your letter of intent leads to a successful closing, not a re-trade.
My Step-by-Step Process
Define scope and purpose: Pricing analysis vs. formal valuation, depending on your needs
Financial reconstruction: Tie financials to tax returns, identify and justify all add-backs
Market benchmarking: Pull current industry multiples and comparable transactions
Risk assessment: Evaluate company-specific factors that affect multiples
Value triangulation: Apply SDE multiples, cross-check with asset values and market data
Structure optimization: Ensure the deal works for SBA financing and current market conditions
The Bottom Line: Why Professional Valuation Matters
I've seen too many deals fall apart because someone guessed at the value instead of doing the math. Sellers leave money on the table with underpriced businesses, or chase unrealistic numbers that waste months on the market. Buyers overpay for emotional reasons or get blindsided by financing issues they didn't see coming.
Professional business valuation isn't about justifying what you want your business to be worth—it's about understanding what the market will actually pay, in today's lending environment, with current buyer expectations.
The difference between a good deal and a great deal often comes down to having the right data at the right time. That's where I come in.
Ready to Discover Your Business's True Value?
Whether you're planning to sell in the next 2-3 years or looking to acquire your next business, let's start with a professional valuation analysis. I'll show you exactly where your business stands in today's market and what drives value in your industry.
Contact Brett Vogeler, Licensed Business Broker
For a confidential valuation consultation [email protected]
Brett Vogeler specializes in business valuations and transactions for Main Street and lower middle market companies. His practice focuses on SBA-financed acquisitions and owner-operator transitions across multiple industries.
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Need a roadmap? Reply in the comments section or send us an email for assistance. 360 Perspective Partners offers Professional Licensed Business, Commercial and Investment Brokerage Services along with providing Professional Licensed Community Management Services in Central Florida: https://my360perspective.com/
Contact me directly at [email protected]. To see our other useful Newsletters on this topic and others: https://realestate-business-broker-guru.beehiiv.com/
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