How to Value a Small or Medium Business

Most SMB valuations come down to three lenses: a multiple of Seller's Discretionary Earnings (SDE) for owner-operator businesses, a multiple of adjusted EBITDA for management-run businesses, and an asset-based floor for capital-heavy operations. Sophisticated buyers triangulate all three.

The single largest driver of multiple is buyer perception of risk: customer concentration, key-person dependency, lease and contract assignability, recurring vs. transactional revenue, and trailing twelve-month trend. Each of these can move the multiple by 0.5–1.5x.

Add-backs matter, but only when they are defensible. Buyers will haircut speculative add-backs aggressively. The cleanest QofE packages identify, document, and substantiate every adjustment up front.