How much is my business worth?
How business value is calculated in Texas: SDE and EBITDA multiples, what raises or lowers your multiple, and how to get an opinion of value.
Most lower-middle-market businesses are valued as a multiple of normalized cash flow. Smaller, owner-operated businesses trade on a multiple of Seller’s Discretionary Earnings (SDE); larger ones trade on a multiple of EBITDA. The multiple moves with growth, recurring revenue, customer concentration, owner dependence, and whether real estate is included.
Start with owner earnings
SDE is your net profit plus the owner’s salary and personal or one-time expenses added back. It answers a simple question: how much money does this business actually put in one owner-operator’s pocket each year? For larger businesses with a management team, buyers use EBITDA instead. Getting this number right, and defensible, is the single most important step before going to market.
Apply a market multiple
A business earning $500,000 of SDE might sell for anywhere from roughly 2.5x to 4x depending on its quality, so somewhere between $1.25M and $2.0M. The range is wide because two businesses with the same earnings are not worth the same if one has recurring contracts and a manager in place and the other depends entirely on the owner. These figures are illustrative, not a quote.
What raises your multiple
Recurring or contracted revenue, diversified customers (no single customer above roughly 15 to 20 percent), documented systems, a team that stays, clean books, and growth. Real estate, when included, is typically valued separately and added on top.
What lowers it
Heavy owner dependence, customer concentration, declining revenue, messy financials, and deferred maintenance or capital needs. Much of our sell-side preparation is about fixing what we can before a buyer ever sees the business.