How to estimate what your business is worth before calling a broker

You can get a realistic answer to “what is my business worth” in about 20 minutes, on your own, without talking to anyone. You need last year’s tax return, a calculator, and honest answers to 5 questions about your business. This isn’t a conceptual overview of how business valuation works. It’s a self-assessment you can run right now.

Key Takeaways

• Small business value = Adjusted Owner Earnings x a multiple. The multiple is set by your industry and then adjusted for 5 specific factors.
• For most trades businesses, Adjusted Owner Earnings (also called Seller’s Discretionary Earnings, or SDE) are built from your net income plus add-backs: items your tax return counts as expenses that a buyer wouldn’t have.
• Professional business valuations differ from owner self-estimates by 30% to 50% in either direction (Sofer Advisors, 2025), so treat this as a starting point, not a final answer.
• The 5 adjustment factors tell you exactly which levers are dragging your number down, and which ones are fixable before you sell.
• This is a self-assessment you can complete on your own. No broker, no advisor, no call required.

Step 1: Calculate your Adjusted Owner Earnings (Seller’s Discretionary Earnings)

This is what brokers and buyers call Seller’s Discretionary Earnings, or SDE. It’s the standard starting point for small business valuation. The plain-English version: it’s everything the business pays you or pays on your behalf in a year. Start with net income from last year’s tax return, then add back each item below.

What gets added back:

• Your full salary or owner’s draw (everything you paid yourself)
• Payroll taxes on your own salary
• Health, dental, and vision insurance paid by the business on your behalf
• Your personal vehicle, or the personal-use portion of company trucks
• Your cell phone (personal portion)
• Personal travel and meals run through the business
• Interest expense on business loans
• Depreciation on equipment and vehicles (from your Schedule on the tax return)
• One-time costs that won’t repeat: a major legal bill, a building repair, a one-time consultant
• Family member wages above what you’d pay a non-family person for the same role

What gets subtracted:

• One-time income that won’t repeat: an unusually large job, a grant, an insurance payout

The result is your Adjusted Owner Earnings.

One important rule: only add back one owner’s full compensation. If your spouse works in the business, add back your salary but normalize your spouse’s pay to what you’d pay a non-family employee for that same role. Adding back both inflates the number in a way buyers will reverse.

See what counts as a legitimate add-back and what doesn’t

Step 2: Find your industry starting multiple

How to value a business depends heavily on what trade you’re in. Different trades sell at different multiples, and the range within each trade is wide. The table below reflects 2025-2026 transaction data from IBBA, BizBuySell, Peak Business Valuation, CTA Acquisitions, and BuyBizUSA. Start at the midpoint. Step 3 moves you up or down from there.

Trade	Low	Midpoint	High
HVAC / heating and air conditioning	2.5x	4.0x	5.5x
Plumbing	2.0x	3.0x	4.5x
Roofing	1.6x	3.1x	4.4x
Landscaping / lawn care	2.0x	2.8x	3.2x
Pest control	3.0x	4.5x	6.0x
Manufacturing (small)	2.7x	3.1x	3.5x
Auto repair	2.0x	2.5x	4.5x

Why do multiples differ by trade? Pest control and HVAC command higher multiples because they have natural recurring revenue through service contracts and maintenance agreements. Roofing tends to land lower because most of the work is project-based, which means a buyer is buying a business that starts each year closer to zero.

These multiples apply when your Adjusted Owner Earnings are under $750K. Above that threshold, buyers shift to EBITDA rather than SDE, and institutional buyers enter the picture with their own pricing models. The 3-step method still gives you a useful floor, but a professional conversation becomes more important at that size.

Step 3: Score your 5 adjustments (The Owner’s Shortlist Estimate)

This is the part most generic valuation guides skip. These 5 factors are what actually move your number within the industry range. Take your midpoint from Step 2 and apply the adjustments below. The total adjustment is capped at plus or minus 2.0x so no single factor overwhelms everything else.

Adjustment 1: Owner dependency

How much does the business depend on you personally?

Situation	Adjustment
You handle most sales, customer relationships, and key decisions. Most customers know you by name.	-1.0x
You have a manager or foreman who handles day-to-day operations, but you still lead sales or key accounts.	-0.5x
The business has a management layer, documented processes, and could run for 6+ months without you.	0

This is the single biggest factor in most trades valuations. Most owners underestimate how dependent their business is on them personally. If you’re the main salesperson, the main estimator, and the main customer relationship, buyers will price that risk explicitly.

Adjustment 2: Service contracts and recurring revenue

What percentage of your annual revenue comes from maintenance agreements, service contracts, or other recurring scheduled work?

Recurring revenue share	Adjustment
Under 20%	0
20% to 40%	+0.25x
40% to 60%	+0.5x
Over 60%	+1.0x

A business that earns a predictable base every year from service contracts is worth meaningfully more than one that re-sells every single job.

Adjustment 3: Customer concentration

How much of your revenue comes from your single largest customer?

Largest customer share	Adjustment
Over 30%	-1.0x
20% to 30%	-0.5x
10% to 20%	0
Under 10%	+0.25x

Adjustment 4: Revenue trend (last 3 years)

Has your revenue been growing, flat, or declining?

Revenue trend	Adjustment
Declining over 3 years	-0.5x
Flat (within 5% either direction)	0
Growing 10% to 15% per year	+0.25x
Growing 15%+ per year	+0.5x

Adjustment 5: Financial quality

How clean and documented are your financials?

Financial quality	Adjustment
Informal books, mixed personal and business expenses, or mostly cash-based with limited records	-0.5x
Standard QuickBooks or similar, tax returns filed, reasonable documentation	0
Reviewed or audited financials, clean separation of personal and business, 3+ years of organized records	+0.25x

Calculate your adjusted multiple:

Add up all 5 adjustments. The total can be negative or positive. Add the total to your Step 2 midpoint. That’s your adjusted midpoint.

Your estimate range:

• Low estimate: Adjusted Owner Earnings x (adjusted midpoint - 0.5)
• High estimate: Adjusted Owner Earnings x (adjusted midpoint + 0.5)

See the specific factors that raise or lower your multiple

Putting it together: a real example

Here’s a concrete walk-through using a plumbing business in Florida.

Step 1: Adjusted Owner Earnings

Item	Amount
Net income from tax return	$180,000
+ Owner salary	$120,000
+ Health insurance	$18,000
+ Truck (personal portion)	$12,000
+ Depreciation	$22,000
+ One-time legal settlement	$15,000
Adjusted Owner Earnings	$367,000

Step 2: Industry midpoint

Plumbing midpoint = 3.0x

Step 3: Adjustments

Factor	Situation	Adjustment
Owner dependency	Owner handles all estimates and most customer relationships	-0.5x
Service contracts	25% of revenue is service agreements	+0.25x
Customer concentration	Largest customer is 12% of revenue	0
Revenue trend	Up 8% per year for 3 years	+0.25x
Financial quality	Standard QuickBooks, clean returns	0
Total adjustment		0.0x

Adjusted midpoint: 3.0x (no net change from midpoint in this case)

The Owner’s Shortlist Estimate:

• Low: $367,000 x 2.5x = $917,500
• High: $367,000 x 3.5x = $1,284,500

Range: $917,000 to $1,285,000

What to do with your number

The number you calculated is a starting point, not a price tag. Here’s how to use it.

If it’s higher than you expected: That’s a good sign, but don’t build retirement plans around a self-estimate. Get a professional opinion before you start any process. Buyers apply their own adjustments, and they often find things the owner didn’t.

If it’s lower than you expected: The 5 adjustment factors just showed you exactly where your number is being dragged down. Owner dependency and service contract percentage are the two most commonly fixable ones. Both take time, but both are within your control if you start now.

If it surprises you in either direction: That’s the point. Now you know enough to have a real conversation with a broker, with realistic expectations on both sides. Most owners who go into a broker conversation with no estimate at all are either disappointed or caught off guard. Either outcome wastes time.

See how reducing owner dependency changes your number

What this business valuation estimate can’t do

Be honest about what you’re holding here. This is a directional range. Professional business valuations differ from owner self-estimates by 30% to 50% in either direction (Sofer Advisors, 2025). The gap is that wide for real reasons.

Here’s what a professional finds that this formula can’t:

• Related-party rent adjustments: if you own the building and the business pays you rent, buyers adjust for that
• Working capital requirements: how much cash the business needs to operate, which affects what a buyer actually takes home
• Bank-statement revenue verification: buyers verify that the money on the tax return matches what actually hit the bank
• Equipment replacement timing: a fleet of trucks due for replacement in two years affects value in ways a formula can’t see
• Market comparables from closed transactions: data from actual sales in your region and trade that you can’t access without a broker

What this formula IS useful for: knowing roughly how to value your business before you make any calls, identifying which of the 5 factors is hurting your number so you have time to fix it, and going into a professional conversation with grounded expectations instead of guesswork.

Understand what your business is actually worth to a buyer

See how a Quality of Earnings report changes the picture

Common questions owners ask

Can I use this formula to set my asking price?

No. This formula gives you a directional range to work with before you enter a professional process. An asking price needs to be set with a broker who has access to closed transaction data, can recast your financials properly, and can position your business to the right buyers. Using a self-estimate as an asking price risks leaving money on the table or scaring off buyers with an unsupported number.

What if my Adjusted Owner Earnings are above $750K?

Above $750K, buyers typically shift to EBITDA rather than SDE, and institutional buyers like private equity firms enter the picture. The 3-step formula still gives you a useful floor estimate, but the multiple range and adjustment factors change at that size. A professional broker conversation becomes more valuable, not less, because the buyer pool and deal structures are meaningfully different.

How long does it take to improve my score on these 5 factors?

Owner dependency and customer concentration each take 12 to 24 months to change in a way buyers will credit. Recurring revenue takes 2 to 3 years to build into a meaningful percentage of revenue. Financial quality can be improved in 6 to 12 months if you start now. Revenue trend requires at least 2 to 3 years of consistent growth to show up credibly in your numbers. There are no meaningful shortcuts.

What's the most common mistake owners make when calculating this?

Using the best year instead of a normalized average. If last year was unusually strong because of a big one-time project, using that figure overstates what a buyer will see when they look at 3 years of tax returns. The second most common mistake is missing owner dependency as a discount. Most owners rate themselves better on that factor than buyers will.