Small Business Valuation
Professional valuation services for small businesses. Get accurate, reliable valuations for companies under $10M using proven methodologies and current market data.
What Is Small Business Valuation?
Small business valuation determines the economic worth of businesses typically generating under $10M in annual revenue. Unlike large corporations, small businesses require specialized approaches that account for:
- Owner dependency: Impact of key person involvement
- Limited marketability: Fewer potential buyers than public companies
- Personal expenses: Owner benefits flowing through the business
- Industry-specific factors: Unique characteristics by business type
Source: Small Business Administration (SBA)
When Do You Need Small Business Valuation?
- • Setting asking price
- • Negotiating with buyers
- • Due diligence support
- • Exit planning strategies
- • Partner buyouts
- • New partner admission
- • Ownership restructuring
- • Buy-sell agreement triggers
- • Divorce proceedings
- • Estate planning
- • Tax planning & compliance
- • Litigation support
- • SBA loan applications
- • Insurance coverage
- • Investment decisions
- • Financial reporting
- • Performance benchmarking
- • Growth planning
- • Value enhancement
- • Succession planning
- • Shareholder disputes
- • Contract breaches
- • Damage calculations
- • Expert witness testimony
Small Business Valuation Methods
What is SDE?
Seller's Discretionary Earnings (SDE) represents the total financial benefit a single owner-operator derives from the business:
- • Net income before taxes
- • + Owner's salary and benefits
- • + Depreciation and amortization
- • + Interest expense
- • + Personal expenses paid by business
- • + One-time or non-recurring expenses
Typical SDE Multiples
*Multiples vary by specific industry, size, growth, and risk factors
Comparable Sales Method
Analyzes recent sales of similar businesses in your industry and market area.
- • Similar business size and type
- • Same geographic market
- • Recent transaction data
- • Adjusted for differences
Rules of Thumb
Industry-specific multiples and benchmarks used as cross-checks.
- • Industry association data
- • Broker databases
- • Professional guidelines
- • Sanity check on values
When to Use Asset Approach
- • Real estate holding companies
- • Equipment-intensive businesses
- • Investment companies
- • Businesses with losses
- • Liquidation scenarios
Key Considerations
- • Fair market value of assets
- • Replacement cost estimates
- • Liquidation vs. going concern
- • Hidden or intangible assets
- • Debt and liability adjustments
Unique Challenges in Small Business Valuation
Most small businesses depend heavily on the owner's involvement, creating valuation challenges:
- • Customer relationships tied to owner
- • Specialized knowledge and skills
- • Management and operational control
- • Supplier and vendor relationships
Impact: May require significant discounts for businesses that cannot operate without the owner.
Small businesses often have incomplete or informal financial records:
- • Cash-based vs. accrual accounting
- • Personal and business expenses mixed
- • Lack of detailed financial statements
- • Inconsistent record keeping
Solution: Professional normalization and adjustment of financial data is critical.
Small businesses face restricted market conditions:
- • Smaller pool of potential buyers
- • Longer time to sell
- • Limited financing options
- • Geographic market constraints
Impact: May require marketability discounts of 10-30% depending on circumstances.
Small businesses often experience irregular earnings patterns:
- • Seasonal fluctuations
- • Economic sensitivity
- • Customer concentration risk
- • Limited diversification
Approach: Requires careful analysis of multiple years and normalization of non-recurring items.
Our Small Business Valuation Process
Business Assessment & Data Gathering
We analyze your business model, industry, and collect 3-5 years of financial records, tax returns, and operational data.
Financial Normalization
We adjust financial statements for owner compensation, personal expenses, and one-time items to determine true economic earnings.
Market Research & Comparables
We research industry multiples, comparable sales, and market conditions affecting your business type and location.
Multiple Valuation Approaches
We apply appropriate methods (typically SDE multiples and market approach) and reconcile to a final value conclusion.
Risk Assessment & Adjustments
We evaluate business-specific risks and apply appropriate discounts or premiums based on marketability, control, and other factors.
Typical Timeline
Small Business Valuation FAQ
Costs typically range from $3,000-$8,000 depending on business complexity. We offer Business Value Assessments for simpler needs starting at lower fees.
SDE includes owner's salary and benefits, while EBITDA assumes market-rate management. SDE is better for owner-operated businesses under $5M.
Online calculators provide rough estimates but can't replace professional analysis. Use them for initial estimates, but get professional valuation for important decisions.
Focus on reducing owner dependency, improving financial systems, diversifying revenue streams, and building management team. See our value enhancement guide.
Financial statements (3-5 years), tax returns, business licenses, lease agreements, customer/supplier contracts, and any buy-sell agreements. We provide a detailed document checklist.
No business is too small if the valuation serves an important purpose. Even very small businesses benefit from professional analysis for sales, legal matters, or strategic planning.
Industry-Specific Small Business Valuations
- • Professional services (law, accounting)
- • Consulting and advisory
- • Personal services (salons, fitness)
- • Home services (HVAC, cleaning)
Key Factors: Client relationships, recurring revenue, owner dependency, service delivery systems
- • Brick-and-mortar retail stores
- • Online e-commerce businesses
- • Restaurants and food service
- • Specialty retail niches
Key Factors: Location, inventory management, brand value, online presence, customer base
- • Light manufacturing
- • Custom fabrication
- • Food processing
- • Contract manufacturing
Key Factors: Equipment value, customer contracts, production capacity, supply chain relationships
Need Industry-Specific Expertise?
We have experience valuing businesses across dozens of industries. Each sector has unique characteristics that affect value.
Discuss Your IndustryReady to Move from Learning to Action?
Put your knowledge to work with professional business valuation services tailored to your specific needs.