How Much Is My Business Worth (Really)?

Most small businesses are worth 2x–4x their annual Seller's Discretionary Earnings (SDE) — net profit plus what the business pays you. Where you land in that range depends on your industry, how dependent the business is on you personally, and where your revenue is heading. That's the whole method. Everything below is how to actually run it on your own numbers.

I get asked this constantly, and for years I couldn't answer it about my own business either. Ten years running Big Love Plant-Based Ice Cream, and I genuinely didn't know what it was worth until I sat down and worked through this exact math. I don't think most business owners know the answer to this question — not because they don't care about it (well, I care about it, and I am a small business owner), but because they're too busy to think about it. So let's find out: how much is your business worth, really?

The Formula

Estimated Value = SDE × Industry Multiple

Two parts, both concrete:

SDE (Seller's Discretionary Earnings) = your net profit + what the business paid you last year. Not just your salary — health insurance, that trip you expensed, the extra draw at the end of a good year. All of it is cash the business actually generated, even if it doesn't show up as "profit" on a P&L.

Now, don't get confused here. Net profit is how much the business made last year. If you run a pizza place and it sold $500k in pizzas and made a net profit of $50k (that's 10%) — then your net profit is $50k.

If you paid yourself that $50k, your net profit is now $0, and what you paid yourself is $50k. You took all the net profit. Don't make the mistake of thinking the business had a net profit of $50k and paid you $50k on top — it doesn't work like that.

If you earned a salary from your business, that's a W2 expense and goes into your operating expenses, so it's already factored into your net profit.

Industry Multiple = a number, usually 2x–4x, based on real closed-sale data for businesses like yours — not a guess, not a rule of thumb someone made up.

There are lots of different ways to value a business, but if you're a small business, you just have to accept that SDE is the only one for you. If you want to understand why, read the full breakdown of why SDE — not EBITDA or asset-based — is the right method for an owner-operated business.

What Actually Moves Your Number

Two businesses with identical profit routinely sell for very different amounts. Three things explain almost all of the gap:

Your industry. Recurring-revenue businesses — self-storage, subscription-style services — sit at the high end of the range. Thin-margin, high-turnover businesses like restaurants sit at the low end. This alone can swing your multiple by 2x.

How dependent the business is on you. A business that runs fine without you in the room is worth more than one that falls apart the day you stop showing up. Buyers aren't just pricing profit — they're pricing whether they're buying a business or buying themselves a job.

Where revenue is heading. Growing, flat, or declining trends shift the number more than most owners expect, because a buyer is pricing in the trend continuing, not just today's snapshot.

A business isn't worth what it earned last year. It's worth what a buyer believes it will keep earning without you. That single sentence explains most of the gap between what owners think their business is worth and what it actually sells for.

Get Your Number

Great — so did you want a free and easy tool to actually work this all out for you? If you do, run your actual revenue, profit, and a few basics through my free valuation tool and get an estimated range in about 60 seconds.

The valuation tool also gives you insight into which of the three factors above are helping your number and which are holding it back. That'll help you increase your business's value over time.

Profit Lights provides an educational estimate only and does not provide a certified, professional, accounting, tax, legal or investment valuation. Actual business value may vary significantly based on financial records, assets, liabilities, location, market conditions, deal structure, buyer demand and other factors.

About Me

I'm Michael Philippou, co-founder of Big Love, a plant-based ice cream business in Santa Monica that I've been running with my wife Victoria for over ten years. Before ice cream, I was a lawyer. I write about the real, unpolished lessons of running a small business — no gurus, no hype, just what's actually worked and what hasn't. Watch more on YouTube (Real Business Real Lessons) or follow along on LinkedIn.