What Is My Business Worth? A Buy-Side Breakdown

You have probably typed this into Google more than once. Maybe at midnight, maybe after a conversation with your accountant that went nowhere, maybe after a broker threw out a number you had no way to verify.

Here is the honest answer: your business is worth what a qualified, funded buyer can justify to an SBA lender, get approved, and actually close on. That number is almost always lower than what sellers expect. And it is almost always higher than what anxious sellers fear. The rest of this piece walks through how that number gets calculated, so you know what is coming before a buyer ever shows up.

What “What Is My Business Worth” Actually Means

Business valuation is not one number. It is a range.

That range comes from a handful of inputs: your real cash flow, the industry, how dependent the business is on you personally, how concentrated your customer base is, and whether a buyer can service the acquisition debt without the business suffocating under the payments.

Sellers tend to anchor on revenue. Buyers anchor on cash flow. Every time.

A landscaping company doing $2M in revenue with $180K in real owner benefit is not a $2M business. At 2.8x SDE, it is a $504K business. Revenue is vanity. Cash flow is what gets financed, what gets underwritten, and what determines the wire on closing day.

The faster you internalize that, the less painful the process will be.

The Two Methods Buyers Will Use to Value Your Business

Most acquisitions under $5M use one of two metrics: SDE or EBITDA. Which one depends on the size and structure of what you have built.

SDE (Seller Discretionary Earnings) is the standard for owner-operated businesses with one full-time owner. It starts with net profit, then adds back your salary, owner perks, one-time expenses, depreciation, amortization, and interest. Think of it as the total economic benefit flowing to a single owner-operator.

Most SDE-based deals close at 2.0x to 3.0x SDE. The ceiling we see in practice is around 3.5x, and that is for businesses with strong recurring revenue, low owner dependency, and clean books.

EBITDA gets used for larger businesses, usually those generating $500K or more in earnings, or businesses with management teams already in place. It strips out owner compensation and substitutes a market-rate manager’s salary instead.

EBITDA-based deals in the lower middle market close at 2.5x to 4.0x. We cap our underwriting at 5.0x EBITDA for any deal we evaluate.

If someone is quoting you 6x or 7x EBITDA on a business doing $400K in earnings, they are either selling you a dream or working a deal that will never close with SBA financing. Worth knowing before you get too attached to that number.

How SBA Underwriting Caps What a Buyer Can Actually Pay You

This is where most sellers get surprised.

Even if a buyer genuinely wants to pay 4x SDE for your business, the SBA does not care about enthusiasm. It cares about one number: the Debt Service Coverage Ratio, or DSCR. That ratio measures how comfortably your business’s cash flow covers the annual loan payments on the acquisition debt.

The SBA and most lenders want to see a minimum DSCR of around 1.25x. We target 1.5x to 2.0x on deals we bring to lenders, because 1.25x is a razor’s edge and we have watched deals fall apart at that level.

Here is what that looks like with real numbers.

Say you are selling a commercial cleaning company with $320K in SDE. A buyer offers $960K (3.0x). They put in 10% equity ($96K) and borrow $864K through an SBA 7(a) loan at a 10-year term. Annual debt service comes in around $110K to $115K.

DSCR on that deal: $320K divided by $112K. Roughly 2.85x. That deal closes.

Now push the asking price to $1.28M (4.0x). Same structure. Debt service climbs to roughly $145K to $150K. DSCR drops to around 2.1x. Still viable, but the buyer needs cleaner books and a stronger narrative for the lender.

Push it to $1.6M (5.0x) and the DSCR falls below 1.5x. The lender gets nervous. The deal wobbles. And none of that has anything to do with whether the buyer likes your business or not.

This is not negotiating strategy. This is arithmetic. The DSCR caps what a buyer can pay you regardless of how badly they want to own your company.

So when a broker suggests listing at a price that would require a buyer to stretch past a 1.5x DSCR, understand what that really means. It means the listing price is aspirational, not financeable.

What Pushes Your Valuation Higher (or Lower) Within the Range

Not all businesses at the same SDE level are worth the same multiple. A handful of factors determine where you land.

Recurring revenue. Contracts, memberships, repeat customers on predictable cycles. These get higher multiples than businesses that have to re-earn every dollar every quarter. Subscription-based businesses routinely trade at the top of their range. Project-based businesses sit at the bottom.

Owner dependency. If the business cannot run without you for 30 days, a buyer is not really buying a business. They are buying a job with employees. Buyers discount heavily for this, and frankly, they should. The more transferable the operations, the higher the multiple.

Customer concentration. If one customer represents 30% or more of your revenue, most buyers will reprice around that risk. Lose that customer post-close and the entire debt service model breaks.

Clean financials. Three years of clean, reconciled books is not a bonus. It is the floor. If your bookkeeper has been running personal expenses through the business and your P&L looks like a puzzle, expect a heavy discount. Or expect buyers to walk entirely.

Industry. Some industries just trade at higher multiples because they carry better margins, more stability, or stronger recurring revenue profiles. Technology-enabled services, healthcare services, and recurring-revenue service businesses tend to trade at the high end. Retail, restaurants, and highly seasonal businesses trade lower.

(Side note: the SBA’s Franchise Directory, if your business is a franchise, also affects how lenders view the deal. Franchise businesses that are on the directory move faster through underwriting. If yours is not on it, that adds friction and sometimes cost to the buyer’s process, which can indirectly affect what they are willing to pay.)

Realistic Valuations by Business Size

Here is a rough framework based on what we see across the hundreds of deals we review each year. These are not guarantees. They are a reality check.

$150K to $300K in SDE: Most deals in this range close at 2.0x to 2.5x SDE, so $300K to $750K in total enterprise value. Smaller deals get lower multiples because the risk is more concentrated and the buyer pool is thinner.

$300K to $600K in SDE: The sweet spot for SBA-financed acquisitions. Multiples typically land at 2.5x to 3.5x, putting enterprise value between $750K and $2.1M. Businesses here with recurring revenue and clean books can push toward 3.5x.

$600K to $1M in SDE or EBITDA: Deals start transitioning from SDE to EBITDA methodology. Multiples of 3.0x to 4.5x are common for quality businesses. You approach and occasionally exceed the SBA’s $5M loan cap in this range, which changes deal structure considerably.

Above $1M in EBITDA: Generally outside SBA-financed territory. Deals involve conventional debt, PE-style financing, or strategic buyers. Multiples can be higher, but so are expectations for management teams, documentation, and systems.

The Gap Between Your Listing Price and What It Actually Sells For

Most businesses list for more than they close for. Not a conspiracy. Just how the process works.

Brokers often suggest a higher listing price to create negotiating room and to win the listing. Buyers come in with an LOI at a lower number. Negotiation lands somewhere in the middle.

The problem starts when sellers anchor emotionally to that listing price and walk away from reasonable offers. We see this regularly. A business lists at 3.8x SDE. A serious, pre-qualified buyer offers 3.0x. The seller says no. The business sits for six months. Eventually sells for 2.7x to a less-qualified buyer with a messier deal structure.

That outcome was entirely avoidable.

The gap between listing price and realistic closing price is typically 10% to 20% on well-priced businesses. On overpriced businesses, it can be 30% or more. Knowing the real number before you list saves you from that trap.

What You Can Do to Improve Your Number Before Listing

You have more control over your valuation than you probably think. But none of it happens fast.

The biggest levers are straightforward: clean up your books, reduce owner dependency, document your processes, and diversify your customer base. Most of these take 12 to 24 months of intentional work.

If you are planning to sell in the next two to three years, now is the time to start. Run the business like someone else needs to be able to buy it and operate it without you. Because eventually, someone will.

Also worth understanding: how add-backs work. A legitimate add-back (a one-time legal expense, a personal vehicle run through the business, above-market owner compensation) increases your SDE and moves the valuation in your favor. An aggressive or unsupported add-back gets cut in due diligence and drops your valuation after you have already anchored to the higher number. That is a painful conversation to have at the closing table.

Work with your CPA to identify clean, defensible add-backs before you ever put a number in front of a buyer. Three years of tax returns. Minimum.

Frequently Asked Questions

What is my business worth if it has no real profit?

A business with minimal or negative profit has minimal acquisition value through traditional financing. SBA lenders and most buyers require enough cash flow to cover debt service. If SDE or EBITDA is near zero, the business may only have asset value (equipment, inventory, real estate) or strategic value to a specific acquirer. Normalizing your financials with a CPA before listing is essential.

How do buyers calculate what a business is worth?

Buyers start with your SDE or EBITDA, apply a market multiple based on your industry and business quality, then stress-test that number against the DSCR calculation to confirm the deal works with SBA financing. The business has to generate enough cash flow to service the acquisition loan, fund working capital, and still leave the buyer a reasonable return on their equity.

What is my business worth if I want to sell in the next year?

Your value is primarily based on trailing 12 months of financial performance and your most recent two to three years of tax returns. Buyers and lenders will average or weight-average these numbers. Focus on maximizing SDE this year, cleaning up your books, and identifying legitimate add-backs now. The work you do in the next 6 to 12 months directly affects your closing price.

Is SBA financing a sign that a buyer is not qualified?

No. SBA-backed buyers are generally more serious and better structured than unfinanced buyers. The SBA process (as outlined on SBA.gov) requires pre-qualification, financial review, and lender approval before an offer is made. Deals involving SBA financing close at a higher rate than deals relying on informal cash arrangements or pure seller-financed terms.

Does a business broker give an accurate valuation?

Brokers provide listing price guidance, not necessarily closing price guidance. Their incentive is to win the listing, which can create upward pressure on suggested pricing. A more accurate picture comes from running the actual SBA underwriting math: DSCR at various purchase prices, realistic multiples for your industry, and a clear-eyed look at add-back defensibility.

Ready to See What a Qualified Buyer Would Offer?

Regalis Capital works with serious, pre-qualified buyers who use SBA 7(a) financing to acquire businesses like yours. We review over 100 deals per week, and we know what the market actually pays across a wide range of industries and revenue profiles.

There is no cost to you as the seller. No commissions. No obligation.

If you want to understand what your business is actually worth to a funded, well-advised buyer, start the conversation here.