Business Valuation Multiple Calculator — SDE and Revenue

Background.

There is no formula that tells you what a private business is worth. What there is, is a method: find what buyers actually paid for businesses like yours, express those prices as a multiple of some earnings or revenue figure, and apply that multiple to your own. This calculator does the second half of that. It cannot do the first half, and it will not pretend to — the multiples it opens with are placeholders, they carry no recommendation, and the answer is only as good as the number you replace them with.

That is not a disclaimer bolted on at the end; it is the whole shape of the problem. The IBBA's own benchmarking guidance puts it plainly: "every business is unique and therefore there are no formulaic one-size-fits-all models to determine value, and an appraiser utilizes his or her professional judgment, experience, and analysis to reach a valuation conclusion". The same source warns that even industry median multiples "vary when you look at a more specific industry code and take into account factors like company size and profit margins". Multiples for completed private transactions are commercial data, sold by subscription, and no free primary source publishes them — which is precisely why this page asks you for one instead of inventing one.

What the calculator does add is structure. It takes a low and a high multiple rather than a single point, because a range is an honest statement of what you know and a point estimate is not. It applies them to whichever basis you choose. And it carries the result through the bridge that owner-operated deals actually settle on: business value, less interest-bearing debt, plus the cash the seller keeps, gives what reaches the owner before tax and fees. That last step is the one most likely to change how you read the headline, and it is why an over-leveraged business can be worth a million as an enterprise and nothing at all to the person who owns it.

Two bases are offered. Seller's discretionary earnings is the basis owner-operated businesses are normally quoted on: the IBBA defines SDE as "one measure of earnings to an owner/operator of a business", "calculated by adding owner's salary to EBITDA", and in practice brokers also add back owner benefits and genuinely one-off items. Revenue is the fallback where earnings are distorted, being reinvested, or negative. There is deliberately no EBITDA basis here: the EV/EBITDA calculator already answers that question with the full enterprise-value bridge, including share count and preferred equity, and a second page competing for the same query would help nobody.

The two bases will not agree unless your multiples are consistent with each other. On the worked example a 3.0× SDE multiple implies a revenue multiple of 0.525×, because SDE is 17.5% of revenue — so a 0.6× revenue multiple is saying something different, and quietly a good deal more optimistic, than the 3.0× SDE multiple sitting next to it. Running both and comparing is a useful discipline; treating whichever is higher as the answer is not.

Finally, know what this is not. Under 26 CFR § 20.2031-3 the fair market value of a business interest is "the net amount which a willing purchaser ... would pay for the interest to a willing seller", determined on all relevant factors including a fair appraisal of all the assets and "the demonstrated earning capacity of the business". The IRS's own Business Valuation Guidelines note that "the three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach" — this page implements one of the three, using inputs you supply. For a lender, a court, a divorce, a buy-sell agreement or a tax filing, you need a credentialed appraiser and a report, not a calculator.

What is business valuation multiple calculator?

A business valuation multiple is the ratio of a completed sale price to some measure of the business's earnings or revenue. Applying an observed multiple from comparable transactions to your own figures is the market approach to valuation, one of the three approaches the IRS's Business Valuation Guidelines identify: "The three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach." The regulatory basis is older than the practice guides: 26 CFR § 20.2031-2(f) directs that where market prices are unavailable, the valuation should consider "the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors", explicitly including the values of securities of corporations "engaged in the same or a similar line of business" whose shares are actively traded.

For owner-operated businesses the earnings figure is normally seller's discretionary earnings, which the IBBA describes as "one measure of earnings to an owner/operator of a business" that "is calculated by adding owner's salary to EBITDA". The logic is that a single owner-operator's compensation is discretionary — a buyer stepping into the same role could pay themselves whatever they like — so it belongs in the earnings a buyer is really acquiring. Larger businesses with a management team in place are quoted on EBITDA instead, because there the salaries are a genuine operating cost.

A revenue multiple applies the same idea to the top line. It is coarser, because two businesses with identical revenue and different margins are not worth the same, but it is the only workable basis when earnings are negative, deliberately suppressed by reinvestment, or too volatile to be representative. The worked example in the IBBA's own guidance is a revenue multiple: "If a benchmark company sold for $1,000,000 and it had yearly revenues of $2,000,000, we would say it sold for 0.50 times revenue", and a business with $3,000,000 of revenue at that multiple would be estimated at $1,500,000.

Whatever the basis, the multiple values the business, not the owner's cheque. Converting one into the other requires a bridge: subtract the interest-bearing debt that must be repaid or assumed, add back the cash the seller retains, and then subtract tax and transaction fees, which this page does not model.

How to use this calculator.

1. 01Choose the basis. Seller's discretionary earnings for an owner-operated business where the owner's compensation is discretionary. Revenue where earnings are negative, distorted or being reinvested. For an EBITDA multiple, use the EV/EBITDA calculator instead — this page does not carry that basis.
2. 02Enter the earnings or revenue figure. Use trailing twelve months, not a forecast, and use the same period you will show a buyer. If you are using SDE, add back exactly one owner's compensation — adding back two working owners' salaries is the single most common way an SDE figure gets inflated.
3. 03Replace the multiple placeholders. This is the step that decides the answer and the step the calculator cannot do for you. Get a multiple from completed sales of comparable businesses — a broker with transaction-database access, a credentialed appraiser, or your industry association. Do not use a rule of thumb you read somewhere without knowing what size and margin band it came from.
4. 04Set the low and high multiples honestly. The gap between them is the width of your uncertainty. If you only have one weak data point, a wide range is the truthful answer; narrowing it does not make you more certain, it just makes you less honest with yourself.
5. 05Enter interest-bearing debt and cash. Bank loans, equipment finance, shareholder loans and capitalised leases are debt. Trade payables are working capital and belong in the separate working-capital adjustment that a deal will negotiate, not here.
6. 06Read owner proceeds, not just the headline. Business value is what the enterprise is worth; owner proceeds is what reaches you before tax and fees. If the two are far apart, your debt is doing the talking.
7. 07Run the other basis as a cross-check. If the SDE and revenue bases give very different answers, at least one of your two multiples is inconsistent with the other — which is worth knowing before you take either into a negotiation.

The formula.

The arithmetic is intentionally trivial, because the difficulty in valuing a private business is never the arithmetic. The chosen basis amount is multiplied by the low multiple, by the midpoint of the two multiples, and by the high multiple, giving three values. The midpoint is the plain arithmetic mean of the two multiples you entered — it is a midpoint, not a most-likely estimate, and the true multiple is no more likely to sit there than at either end of your range.

Net debt is interest-bearing debt less cash and equivalents. Owner proceeds is the mid business value less net debt. A negative net debt figure means the business holds more cash than debt, and the bridge adds it back rather than subtracting it. Owner proceeds is deliberately not clamped at zero: if a business carries more debt than its multiple values it at, the honest output is a negative number, and suppressing it would be the more dangerous behaviour.

Rounding stage: nothing is rounded part-way through. The midpoint multiple, all three values and the bridge are carried at full decimal precision and rounded exactly once, at the point the result is returned, to ten decimal places. This matters where the two multiples do not average to a round number — a low of 2.0 and a high of 2.3333333333 give a midpoint of 2.16666666665, and the value is computed from that unrounded midpoint rather than from a midpoint rounded first.

Using the worked example: seller's discretionary earnings of $420,000 with a range of 2.0× to 4.0× gives a midpoint of 3.0×, so the business values at $840,000 at the low end, $1,260,000 at the midpoint and $1,680,000 at the high end. Interest-bearing debt of $180,000 less cash of $60,000 is net debt of $120,000, so owner proceeds at the midpoint are $1,140,000. Note the width: the top of the range is exactly double the bottom, which is what a 2.0×-to-4.0× spread means and is a fair reflection of knowing very little about the right multiple.

Switching to the revenue basis at 0.4× to 0.8× gives a midpoint of 0.6× and $1,440,000, with owner proceeds of $1,320,000. The two bases disagree by $180,000, and the reason is arithmetic rather than mysterious: SDE is $420,000 on $2,400,000 of revenue, which is 17.5%, so a 3.0× SDE multiple corresponds to a revenue multiple of 3.0 × 0.175 = 0.525×. Entering 0.525× on the revenue basis returns exactly $1,260,000, the SDE answer. The 0.6× placeholder is simply a more optimistic statement about the same business.

Invalid states are refused rather than returned. A zero or negative earnings figure on the SDE basis is rejected, because a multiple of a loss has no meaning — value a loss-making business on revenue or on its assets instead. A missing multiple is rejected rather than defaulted, because assuming one would be exactly the failure this page exists to avoid. A high multiple below the low multiple is rejected with a message asking you to swap them.

A worked example.

Frequently asked questions.

References& sources.

1. [1]26 CFR § 20.2031-3 "Valuation of interests in businesses" (retrieved 2026-07-29 via the Cornell Legal Information Institute). Primary regulatory source for the fair-market-value standard used on this page: value is "the net amount which a willing purchaser ... would pay for the interest to a willing seller", determined on all relevant factors including "(a) A fair appraisal as of the applicable valuation date of all the assets of the business, tangible and intangible, including good will" and "(b) The demonstrated earning capacity of the business". Open access.
2. [2]26 CFR § 20.2031-2(f) "Where selling prices or bid and asked prices are unavailable" (retrieved 2026-07-29 via the Cornell Legal Information Institute). Regulatory basis for the market approach implemented here: the factors to consider include "the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors", among them the values of securities of corporations engaged in the same or a similar line of business that are actively traded on an exchange. Open access.
3. [3]International Business Brokers Association / Business Valuation Resources, "How to benchmark the value of a business", hosted at ibba.org (retrieved 2026-07-29). Independent second authority, and the source of this page's SDE definition and its revenue-multiple worked example: "Seller's discretionary earnings (SDE): One measure of earnings to an owner/operator of a business. This figure is calculated by adding owner's salary to EBITDA"; "every business is unique and therefore there are no formulaic one-size-fits-all models to determine value"; and the example in which $3,000,000 of revenue at a 0.50 selling price/revenue multiple gives an estimated worth of $1,500,000. The industry multiple tables in the same document are images of subscription DealStats data and were not read; no multiple on this page is taken from them. Open access.
4. [4]Internal Revenue Service, Internal Revenue Manual 4.48.4 "Business Valuation Guidelines" (retrieved 2026-07-29). Source for the statement that "the three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach", of which this page implements the market approach only. Open access.
5. [5]Aswath Damodaran, "Enterprise Value Multiples by Sector (US)", NYU Stern School of Business, data as of January 2026, 5,994 firms (retrieved 2026-07-29). Cited only as the dated, observable public-market contrast used in the FAQ — total-market EV/EBITDA of 23.95 across all firms and 19.73 across firms with positive EBITDA. These are PUBLIC-COMPANY EBITDA multiples and are explicitly not offered as multiples for a private owner-operated business. Open access.