What’s a Fair Price for a Small Business?
Ask ten sellers how they priced their business and you’ll get ten stories — a number their neighbor got, a figure their accountant floated, what they “need” for retirement. None of that is valuation. The good news: valuing a Main Street business isn’t mysterious. It comes down to two things — the earnings, and the multiple. Get those right and you’ll know within minutes whether an asking price is fair, aggressive, or a gift.
Start with SDE, not revenue
Small businesses are priced on Seller’s Discretionary Earnings (SDE) — not revenue, and not net income as reported on the tax return. SDE is what the business actually puts in an owner-operator’s pocket. You start with net profit and add back the owner’s salary, the owner’s perks (the truck, the phone, the “business” trip to Cabo), interest, taxes, depreciation, and any one-time expenses that won’t recur. The result is the true earning power a new owner steps into.
Why does this matter so much? Because sellers love to quote revenue — “we did $2 million last year” — and revenue tells you almost nothing about what you’ll take home. A $2 million business with $120,000 of SDE is worth a fraction of a $700,000 business with $250,000 of SDE. Always drag the conversation back to earnings.
Then apply the multiple
Once you have clean SDE, you multiply it by a number that reflects how risky and how transferable those earnings are. For most owner-operated Main Street businesses, that multiple lands between 2x and 4.5x SDE. Larger businesses — the kind with a real management team where the buyer won’t work in the business day-to-day — shift to an EBITDA basis and command 4x to 8x or more.
For context, according to BizBuySell’s Q4 2025 data, the average small business sold at roughly 2.57x SDE, with a median sale price of $350,000 and median cash flow near $159,000. Businesses sold, on average, at 94% of their asking price. So when a seller opens at a 5x multiple, the market is telling you that’s the top of the range, reserved for the strongest businesses — not the default.
What pushes a multiple up
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Recurring revenue. Contracts, subscriptions, and repeat customers are worth far more than one-off sales.
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Low owner dependency. If the business runs without the owner, it’s transferable — and transferable earnings are worth more.
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Diversified customers. No single client should make or break the business.
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Growth and clean books. A rising trend and financials you can actually verify both add real value.
What drags a multiple down
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Customer concentration. If one client is 40% of revenue, that’s not a business — it’s a relationship you’re inheriting.
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The owner IS the business. If customers buy because of the owner’s name, personal relationships, or hands-on expertise, earnings walk out the door at closing.
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Declining or lumpy revenue. Buyers pay for the future, not the past.
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Messy or unverifiable financials. If you can’t trust the numbers, you can’t pay a premium multiple on them.
The industry matters too
Multiples cluster by industry because different businesses carry different risk. Asset-heavy or recurring-revenue businesses — storage facilities, car washes, laundromats, medical billing — tend to command higher multiples because their earnings are stickier. Restaurants, retail, and businesses fighting margin pressure sit lower. Always benchmark against comparable sales in the same industry and size band before you decide what “fair” means.
How to know if you’re overpaying
Here’s the discipline: verify the SDE yourself, don’t take the broker’s add-back schedule on faith. Then ask whether the multiple matches the risk. A 4x multiple on a business with recurring revenue and low owner dependency can be a bargain. The same 4x on a business where the owner is the entire operation is a trap — you’re paying a premium for earnings that may not survive the transition. Price is what the seller asks. Value is what those earnings are worth to you after you own them. The gap between the two is where you either make your money or lose it.
GET THE PLAYBOOK
Want the full valuation framework, including the add-backs sellers inflate and how to defend your number in negotiation? The Silver Tsunami: The Buyer’s Guide to the Greatest Business Opportunity of Our Generation walks you through the entire arc — from finding off-market deals to structuring the offer to closing without overpaying. Written for first-time buyers who don’t want to make a $500K mistake.