How are small businesses valued?

What multiple do small businesses sell for?

The best public data on Main Street deals comes from BizBuySell's closed transactions. As of October 2026, covering 2021 through Q1 2026:

• All-sector average: 2.57x cash flow (SDE) and 0.67x revenue.
• Q1 2026 average: 2.7x SDE.
• Median sale price: $350,000. Median cash flow: $165,000.

Industry matters more than any average. SDE multiples by industry in the same data:

• Car wash: 4.99x
• Laundromat: 3.65x
• E-commerce: 3.43x
• HVAC: 2.79x
• Restaurants: 2.15x
• Hair salons: 2.04x

The pattern is consistent. Businesses with real estate, equipment or recurring demand sell higher. Businesses that depend on the owner's labor, or that buyers see as easy to start from scratch, sell lower.

Which valuation methods do buyers and lenders use?

1. Market multiple of earnings. SDE times an industry multiple for owner-operated businesses. EBITDA times a multiple for larger ones. This is the method most buyers, brokers and appraisers lead with.
2. Revenue multiple. A cross-check, not a method on its own. Two businesses with the same revenue can have very different earnings.
3. Asset value. What the equipment, inventory and other assets are worth. This sets a floor for asset-heavy businesses and is the main value for businesses with weak earnings.
4. Cash flow and debt capacity. What the business can pay for after debt service. This is how a bank thinks. The SBA requires debt service coverage of 1.25x for an Initial Acquisition, measured on historical cash flow, not projections.

For an SBA-financed purchase, a fifth test overrides the others. SBA SOP 50 10 8.1 requires an independent business valuation on every change-of-ownership loan, and total debt is capped at the appraised value. If you agree to pay more than the appraisal, the gap comes from your cash.

Why do multiples rise as businesses get bigger?

Size reduces risk. A larger business usually has managers, systems and more customers, so it does not collapse if one person leaves. Buyers pay more for that.

• Above roughly $1 million of earnings, buyers stop using SDE and switch to EBITDA, which treats the owner's salary as a cost. Multiples rise at the same point.
• GF Data's 2024 median EBITDA multiples by deal size: 4.5x for $1 million to $10 million of enterprise value, 6.5x for $10 million to $100 million, and 9.0x for $100 million to $500 million.
• The IBBA's Q2 2026 Market Pulse reports deals with $5 million to $50 million of EBITDA averaged 5.8x.
• The Stanford 2024 search fund study reports a median of 7.0x EBITDA paid by search funds.

This size gap is the basis of the holding-company idea. Profit bought at a small-business multiple can be worth more inside a larger platform valued at a higher multiple. The site's illustrative math: a business earning $1 million a year bought at 4x is $4 million; inside a platform valued at 10x, that profit supports $10 million of value before growth. Real multiples vary, and overpaying or failing to integrate destroys value.

Worked example: valuing two businesses

A business at the BizBuySell median cash flow:

1. SDE: $165,000.
2. At the all-sector average: $165,000 × 2.57 = $424,050.
3. At the Q1 2026 average: $165,000 × 2.7 = $445,500.
4. Revenue cross-check, assuming $600,000 of revenue: $600,000 × 0.67 = $402,000.
5. A reasonable opening range: about $400,000 to $445,000, before adjusting for this business's specific risks.

An owner-run HVAC business:

1. SDE: $300,000.
2. At the BizBuySell HVAC average: $300,000 × 2.79 = $837,000.
3. Practitioner estimates for owner-run HVAC shops in 2026 run 2.0x to 3.5x SDE: $600,000 to $1,050,000.
4. Where it lands in that range depends on how much of the work the owner does personally, the share of maintenance-contract revenue, licensing and the condition of the trucks and equipment.

Neither number is the price. It is the starting point for diligence, lender underwriting and negotiation. Check that the SDE is real before you apply any multiple.

Where these numbers come from: BizBuySell multiples, medians and the SDE-to-EBITDA switch are from Beancount's analysis of BizBuySell data. EBITDA multiples by size are GF Data figures via Carry and Conquer. The 5.8x figure is from the IBBA Market Pulse Q2 2026. The 7.0x search fund median is from the Stanford 2024 study via Searchfunder. HVAC ranges are practitioner estimates from Beancount. SBA valuation and coverage rules are from SOP 50 10 8.1 as summarized by Cantrell Firm. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

Is the asking price the value?

No. The asking price is the seller's opening position. The value is what the earnings support after diligence, what a lender will finance and what the appraisal shows.

Why do the medians imply about 2.1x when the average is 2.57x?

The $350,000 median price divided by the $165,000 median cash flow is about 2.1x. Medians and averages describe different deals, and a few high-multiple sales pull an average up. Use industry multiples, not either headline figure, for a specific business.

Do I need a formal appraisal?

For an SBA loan, yes. The SBA requires an independent business valuation on every change-of-ownership loan. For a non-SBA deal, it is a judgment call based on price and risk.

Does a Quality of Earnings report change the value?

It can. For SBA Initial Acquisitions and Business Expansions at a $3 million price or more, a lender-commissioned QoE is required and its earnings are used in the coverage calculation. If the QoE finds lower earnings, the supportable price falls.

What comes next

Every valuation starts with which earnings figure you are multiplying. See the difference between SDE and EBITDA. Buyers who plan to build a holding company should learn both, because the platform will be valued on EBITDA even if the first business is priced on SDE.

Related articles

• What is the difference between SDE and EBITDA?
• How much should I pay for a business?
• How do you tell a good deal from a bad deal?
• What is multiple arbitrage and how do roll-ups create value?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.