Let me tell you something that took me years to learn in the gym and even longer in business: guessing is not a strategy. Back in the day, I watched guys load up plates based on what felt right. They’d slap on two forty-fives because the bar looked impressive, not because the math supported it. Know what happened? Stalled reps, blown backs, wasted years. Valuing a business works the same way. If you’re picking an SDE multiple out of thin air, you’re the guy guessing at the rack.
So let’s fix that.
What an SDE Multiple Actually Tells You
SDE stands for Seller’s Discretionary Earnings. It’s your net profit plus add-backs like owner salary, one-time expenses, and those “personal” charges that somehow ended up on the company card. No judgment. We’ve all been there.
The multiple is simply the number buyers apply to that earnings figure to arrive at a price. A 3x multiple on $400K SDE means a $1.2M valuation. Simple math. The tricky part is knowing which multiple your industry commands, and why.
Why Industry Matters More Than You Think
A SaaS company with recurring revenue might pull 5x to 7x. A landscaping business with a truck fleet and thin margins? Often 2x to 3x. Same earnings, wildly different prices. Buyers pay for risk, transferability, and recurring revenue.
Three factors drive your multiple:
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Recurring revenue. Predictable income earns premium multiples.
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Owner dependence. If the business falls apart without you, buyers discount hard.
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Customer concentration. One client at 40 percent of revenue is a red flag.
The Practical Playbook for Finding Your Multiple
Here’s the process I’d run if I were selling tomorrow.
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Pull comparable sales data. Industry brokers, trade associations, and business sale databases publish real transaction multiples. Not listings. Actual closed deals.
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Segment by size. A $200K SDE business and a $2M SDE business in the same industry often trade at different multiples. Buyers of small deals accept more risk, so multiples compress.
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Adjust for your strengths. Strong management team? Documented systems? Diversified customers? You’ve earned a bump above the industry median.
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Sanity check with buyers. Talk to two or three acquisition-minded folks in your space. Ask what multiple they’d apply and why. Their answers will teach you more than any spreadsheet.
The Mistakes That Cost You Real Money
I’ve seen owners anchor to a number they heard at a conference and refuse to budge. Pride is expensive. Here’s what to avoid:
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Using asking prices instead of closed sale data
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Ignoring working capital and asset adjustments
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Forgetting that add-backs get scrutinized hard during due diligence
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Assuming your multiple matches the guy down the street with twice your revenue
One more thing. Get a professional valuation before you list. It costs a few grand and routinely saves sellers six figures in negotiation blunders. That’s the best return you’ll find anywhere.
Stop Guessing and Start Pricing
Your business value isn’t a feeling. It’s a number built from earnings, risk, and market reality. Find your industry’s range, adjust for your specific strengths and weaknesses, and validate with real buyers. Do that work and you walk into negotiations with your feet planted. No guesswork. No ego lifting. Just solid, defensible math.
Now go put in the reps.