You've run the numbers and worked out how much your business is worth on paper (congratulations). Seller's Discretionary Earnings times an industry multiple has you on a range — you know roughly what your business is worth (double congratulations). That's not the same question as "what will it actually sell for." The estimate is where a deal starts. Everything below is what moves it from there to a signed offer.
1. The Estimate Is a Starting Point, Not a Price
An SDE-based estimate uses three inputs: your profit, your owner comp, and an industry multiple. A real buyer's offer uses those same inputs — then adjusts every one of them based on things a quick estimate can't see: your actual financials, your lease, your customer base, your equipment, and how the deal gets structured.
Two businesses with the identical SDE range can sell six months and 20% apart on price, because one owner prepared for a sale and the other didn't.
2. Add-Backs: Where the Real Negotiation Starts
Before a buyer applies a multiple to anything, they recompute your SDE themselves — starting from your net profit and adding back every expense that's genuinely discretionary or non-recurring. This is where most of the back-and-forth in a real deal happens.
Examples of legitimate add-backs typically include: your own salary and benefits, personal expenses run through the business, one-time legal or repair costs, and family members on payroll who won't stay after the sale.
What gets challenged: anything a buyer thinks is actually necessary to run the business — a "one-time" expense that shows up every year, or an add-back that assumes the buyer inherits favor and relationships you personally built.
The SDE you calculated yourself or through Profit Lights' free valuation tool is your starting SDE. The number a serious buyer works from, after add-back negotiation, is usually different — sometimes higher, more often lower than an optimistic owner expects.
3. Asset Sale vs. Stock Sale Changes What You Actually Keep
Most small business sales are structured as asset sales — the buyer purchases the business's assets and operations, not the legal entity itself. You keep the corporate shell (and its liabilities), the buyer gets a clean start. This is the buyer-favored structure, and it's the default for the vast majority of Main Street deals.
A stock/equity sale — the buyer purchases the entity itself, liabilities included — is less common at this size, but can matter for tax treatment or if a valuable contract or license is tied to the entity and can't easily transfer.
The distinction matters because it changes your actual after-tax proceeds, not just the headline sale price. An asset sale and a stock sale with the same face-value price can leave you with meaningfully different amounts after tax — this is a conversation for your accountant, not something a valuation estimate captures.
4. What Due Diligence Actually Checks
Once a number is agreed in principle, a buyer verifies it. That process typically covers:
Financial records. Do your reported numbers match your tax returns and bank statements? A business run partly in cash, or with financials that don't reconcile cleanly, gets discounted hard here — not because the business is bad, but because the buyer can no longer trust the numbers used to price it.
Customer concentration. If one customer is a large share of revenue, a buyer prices in the risk that customer leaves when you do — the same concentration risk this site has a free tool for.
Lease and contract transferability. A great location on a lease that doesn't transfer to a new owner, or key contracts that require your personal signature or relationships, can materially change what a buyer is willing to pay.
Equipment and inventory condition. Especially relevant for restaurants, retail, and trades businesses — a buyer isn't just pricing your earnings, they're pricing what they inherit physically.
5. Timing Changes Your Number More Than Owners Expect
A business trending down going into a sale process gets discounted harder than the raw trailing numbers suggest, because a buyer is pricing in the trend continuing under new ownership, not just where you are today. The inverse is also true: a business that shows two to three years of clean, verifiable growth heading into a sale can support a multiple at the top of its industry range, sometimes above it.
This is part of why "sell now" and "sell in two years, after fixing X" can produce very different outcomes — the valuation methodology doesn't change, but where you land in it does.
What This Means for You
If you're actually preparing to sell — not just curious what your business might be worth — the SDE-times-multiple estimate tells you the range you're working from. What determines where you land in that range, and whether the number survives due diligence, comes down to your books being clean, your customer base not being too concentrated on one account, your lease being transferable, and having a real trend to show, not just a trailing-twelve-month snapshot.
None of that shows up in a 60-second estimate. All of it shows up in an actual offer. Your SDE is your starting point.
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.
Get Your Starting Number
Before you get into add-backs, deal structure, and due diligence, you need a baseline. Run your actual revenue, profit, and a few basics through my free valuation tool and get an estimated range in about 60 seconds — the same starting point a real conversation with a buyer or broker would begin from.
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.
Want to know how your business is actually doing? Start with the free Business Health Check — a couple minutes of questions and your email gets you a real score. Or dig into the other four: Valuation Estimator, Cash Runway, Customer Concentration Risk Checker, and Break-Even Calculator.