Is this business worth something if I sold it?

Most small businesses are worth less than their owners think

Your business does $600,000 in annual revenue. You assume it is worth at least $600,000. But buyers do not pay for revenue. They pay for profit. Specifically, they pay a multiple of the profit the business generates for its owner (Seller's Discretionary Earnings, or SDE).

If your SDE is $120,000 and the typical multiple for your industry is 2.5x, your business is worth roughly $300,000. Not $600,000. And if you are the sole salesperson, the key technician, and the only person who knows the clients, a buyer will discount even further because the value walks out the door with you.

Knowing your rough valuation matters even if you are not planning to sell. It tells you whether you are building an asset or just running a job with a business card.

What Seller's Discretionary Earnings (SDE) means and how to calculate it

SDE is the total financial benefit the business provides to its owner. It is the number buyers use to value small businesses (typically under $5M in revenue). Here is the formula:

• Start with net income. Your bottom line from the P&L.
• Add back owner's salary and benefits. Whatever you pay yourself through the business (salary, health insurance, retirement contributions, personal vehicle expenses run through the business).
• Add back non-recurring expenses. One-time costs that a buyer would not incur: a lawsuit settlement, a major repair, or a move to a new office.
• Add back depreciation and amortization. These are non-cash expenses that reduce reported income but do not affect actual cash flow.

Example: Net income of $48,000 + owner salary of $72,000 + depreciation of $8,400 = SDE of $128,400.

How to calculate your SDE and estimate value in QuickBooks Online

1. 1
   Run a 12-month Profit and Loss

   Go to Reports→ “Profit and Loss” for the last full 12 months. Note the Net Income at the bottom.

2. 2
   Find your owner compensation

   Look for your salary in the payroll section. Also check for personal expenses the business covers: personal vehicle, health insurance, meals, phone, retirement contributions. Add these up.

3. 3
   Add back depreciation

   Find Depreciation and Amortization in the expense section of the P&L. This is a non-cash expense that gets added back.

4. 4
   Remove non-recurring items

   Identify any one-time expenses (legal settlements, major repairs, relocation costs). Add these back to normalize earnings.

5. 5
   Look up your industry multiple

   Visit BizBuySell.com and look at the “Insight Report” or search completed sales in your industry. Typical SDE multiples for small businesses: service businesses 1.5x-3x, retail 1.5x-2.5x, restaurants 1.5x-2.5x, manufacturing 2x-4x, SaaS/tech 3x-6x.

6. 6
   Multiply SDE by the multiple for a rough value

   SDE x industry multiple = estimated business value. Example: $128,400 x 2.5 = $321,000. This is a ballpark. Actual value depends on growth trends, customer concentration, and owner dependence.

How to calculate your SDE in Xero

1. 1
   Run a 12-month Profit and Loss

   Go to Accounting → Reports→ “Profit and Loss” for the full year. Note Net Profit.

2. 2
   Add back owner compensation and depreciation

   Find your salary in Wages and Salaries. Find personal expenses the business covers. Find Depreciation. Add all of these back to Net Profit.

3. 3
   Apply an industry multiple

   Same sources: BizBuySell, IBISWorld, or your industry broker. SDE x multiple = rough valuation.

What affects your business value beyond the numbers

• Owner dependence is the biggest value killer. If revenue stops when you stop, a buyer is really buying a job, not a business. Owner-dependent businesses sell at the low end of the multiple range or do not sell at all.
• Customer concentration matters. If one client is 30%+ of revenue, the buyer faces concentration risk. This reduces the multiple they will pay.
• Growth trends move the multiple. A business growing 20% year over year commands a higher multiple than one that is flat or declining, even with the same SDE.

Or get an automatic business valuation estimate every quarter

Bottomline connects to your accounting software and calculates your SDE, applies industry-appropriate multiples, and factors in growth trends and concentration risk:

Bottomline updates this estimate quarterly as your financials change, so you always know approximately what your business is worth and which levers would increase the value most.