How a business is priced

A buyer prices a small business by taking what it earns for the person who owns it, and multiplying that by a number that reflects how risky the earnings are. Earnings times multiple. Every negotiation you will ever have about price is really a negotiation about one of those two inputs.

The number is not revenue

The most common first-time mistake is quoting the business in revenue. Two businesses can bill the same million dollars a year, and one keeps three hundred thousand while the other keeps sixty. They are not worth similar amounts, and a buyer will not price them similarly. Revenue is how big the business is. Earnings are what a buyer is actually purchasing.

Owner earnings, defined

The measure used for owner-run businesses is called seller’s discretionary earnings, usually shortened to SDE, and the idea is simpler than the name: how much money does this business put in the pocket of the one person who owns and runs it, in a normal year. You build it by starting from the profit on the books and adding back what the business pays you and pays for you:

• Your salary. The buyer will pay themselves differently; the money was available to the owner, so it counts.
• Personal expenses run through the business. The truck you drive home, the phone, the health insurance, the conference that also served as travel.
• Genuine one-time costs. The flood repair, the lawsuit that settled, the software migration. Things a buyer will not face in a normal year.

A business showing $150,000 of profit, paying its owner $90,000, covering $22,000 of the owner’s personal costs, and carrying an $18,000 one-time repair has SDE of $280,000. Those figures are an illustration of the arithmetic, not market data, but the arithmetic is exactly what a buyer will do with your numbers, and it is worth doing yourself before anyone else does.

One caution that prevents difficulty later: every add-back must be provable. An add-back you can document is earnings. An add-back you assert is an argument, and arguments get discounted.

The multiple

The multiple is a summary of risk, set by what buyers have recently paid for comparable businesses. For reference, BizBuySell’s national data across all industries showed businesses selling at a median of 2.7 times cash flow in the second quarter of 2026. Licensed trades with real recurring revenue can sit above a national all-industry median, and businesses that depend entirely on their owner sit below it. Where you land inside the range is not luck. It is the list below.

Source: BizBuySell Insight Report, Q2 2026. National, all industries: a reference point, not a valuation of your business.

What moves the multiple

• Recurring revenue you can document. Contracted, scheduled work that renews is the most valuable thing most trade businesses own. Separated out on the financials, it raises the multiple. Blended invisibly into total revenue, it raises nothing.
• Customer concentration. If one account is a quarter of revenue, the buyer prices what happens if it leaves.
• Whether the business runs without you. Every part of the operation that lives only in your head is priced as risk.
• Clean books. Financials that match the tax returns, and a P&L a stranger can follow. Unglamorous, and reliably worth more than new trucks.
• Licenses that survive the sale. In a licensed trade, whether the license holders stay is often a buyer’s first question.

What does not move it

The condition of the premises, the signage, the age of the fleet, how difficult the years were, and what you require for retirement. None of it is improper to raise; all of it is invisible in the arithmetic. A buyer pays for the income stream and its risk. The work of preparing a business for sale is the work of improving one or both.

Where this fits: this is the first conversation, and it is the arithmetic our written assessment runs with your real numbers. Next in the series: the vocabulary you will hear from here to closing.