How valuation multiples actually work
Most small businesses sell on an SDE multiple. Mid-market businesses sell on an EBITDA multiple. The number you multiply by — the multiple — comes from your industry, your revenue size, and a stack of operational signals. This is the plain-English version.
Why this matters
Two businesses with identical $1M cash flow can sell for $3M or $7.5M depending on the multiple. The multiple isn't magic — it's the sum of operational signals you can actually move.
SDE vs EBITDA — pick the right one
SDE (Seller's Discretionary Earnings) is what an owner-operator takes home in cash flow: net income + owner salary + owner perks + interest + depreciation + amortization. Used for smaller businesses (typically under $1M EBITDA) where the owner is active in the business.
EBITDAstrips out the owner. It's net income + interest + tax + depreciation + amortization. Used for businesses big enough to have professional management — typically $1M+ EBITDA.
Pro tip — which one applies to you
If you're actively running the business and your replacement would draw a salary, you're an SDE business. If you have a real GM and you're mostly hands-off, you're an EBITDA business. Same financials, different multiple math.
The IBBA Q4 2024 baseline numbers
The Market Pulse survey by IBBA tracks broker-reported transactions. Median multiples by deal size:
- Under $500K: ~2.4x SDE
- $500K – $1M: ~2.8x SDE
- $1M – $2M: ~3.0x EBITDA
- $2M – $5M: ~4.1x EBITDA
- $5M – $50M: 5.0x – 7.0x EBITDA
Those are medians. Strong operations push you above; legacy businesses pull you below.
How industry changes the multiple
Sample of where industries cluster (SDE basis for smaller deals):
- Laundromats: 3.5 – 5.5x SDE (water/sewer the gating factor)
- HVAC: 3.0 – 6.5x SDE (recurring contracts the lever)
- Pest control: 3.5 – 5.5x SDE (route + recurring %)
- Pool service: 6 – 12x MRR (route density driven)
- Restaurants: 1.5 – 3.0x SDE (lease-driven, high mortality)
- Self-storage: 5 – 10x EBITDA (cap-rate driven)
- C-store + gas: 2 – 4x SDE (gallons + inside sales)
Where the multiple comes from — the math
Every adjustment moves the multiple a fraction of a turn:
- +0.5 to +1.5x for management depth
- +0.5 to +2.0x for recurring revenue
- +0.5 to +2.0x for KPI dashboards
- +0.4 to +1.0x for signed backlog (trades)
- −0.5 to −1.0x for owner-personal customer relationships
- −0.5 to −1.25x for owner-captive operations
- −0.5x for top-customer concentration over 25%
- −0.5x for storm-revenue concentration over 50% (roofing)
Stack four or five of these in your favor and you're at a 6-7x EBITDA business. Stack four against you and you're at 3.0x with an earnout.
What a buyer's offer actually reflects
Buyers walk in with a target multiple in their head — based on industry, deal size, and recent comps. Every operational signal they verify either confirms it, lifts it, or drags it down. Your job before listing is to bank as many up-arrows as possible.
What the multiple is NOT
- Not a market value. A buyer can pay above or below the multiple-implied range based on synergies, financing, or urgency.
- Not a guarantee. Multiples are working benchmarks from broker-reported transactions, not appraisals.
- Not the same as the asking price. Smart asking prices sit slightly above the multiple-implied range to leave room for negotiation.
See your industry's multiples
The 50-industry Playbook has multiples, deal-killers, lease patterns, and financing notes for every vertical we cover.
Open the Playbook →