A landscaping company owner in her second decade of business got three numbers from three advisors. One said her company was worth $340,000. Another said $510,000. A third, using a different formula entirely, landed at $290,000. Same books, same year, same buyer pool. Three answers that didn't overlap.
This isn't a sign that someone did the math wrong. It's a sign that "what is my business worth" isn't one question, it's four, and each one measures something different.
There is no single correct valuation number
Public companies have a market price because millions of people trade shares every day and the price is whatever the last trade said it was. Small businesses don't have that. Nobody is quoting a live price for a 12-person HVAC company or a freelance design studio. Instead, valuation is an estimate built from a formula, and the formula you pick determines the range you land in before you've even plugged in a number.
That's not a flaw in the process. It's the honest answer to a question that doesn't have a single objectively correct value. A buyer financing the purchase with a bank loan will weight the numbers differently than a private equity firm buying for a rollup, and both will weight them differently than a founder's estate settling on a number for a family transfer. The "right" valuation depends partly on who's asking and why.
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The four methods, and what each one actually measures
Revenue multiple
This is the bluntest tool: take annual revenue and multiply it by an industry-typical factor, often somewhere between 0.5x and 3x depending on the sector. A software company with recurring subscriptions might command a much higher multiple than a low-margin retail shop with the same top-line revenue.
Revenue multiples are fast and useful for a sanity check, but they ignore profitability entirely. A business doing $2 million in revenue at a 3% margin is not worth the same as one doing $2 million at 25%, even though a pure revenue multiple would treat them identically unless you adjust the multiplier itself.
EBITDA multiple (industry-adjusted)
Earnings before interest, taxes, depreciation, and amortization strips out financing decisions and accounting choices to get closer to the cash the business actually generates from operations. Buyers who plan to run the company at scale, or who are financing the deal with debt, tend to lean on this number because it maps closely to what a lender will underwrote against.
The industry adjustment matters more than people expect. A 4x EBITDA multiple might be generous for a landscaping business and stingy for a niche software company with sticky customers. Applying one flat multiple across industries is one of the most common ways sellers overvalue or undervalue their own company.
Seller's discretionary earnings (SDE)
SDE starts from EBITDA and adds back the owner's salary, personal expenses run through the business, and other discretionary items, because in an owner-operated small business, "profit" and "what the owner actually took home" are tangled together. This is the standard method for businesses where a single owner is the operator, since it answers the practical question a buyer is really asking: if I step into this seat, what does this business generate for me?
SDE multiples for small owner-operated businesses commonly run lower than EBITDA multiples for larger companies, often in the 1.5x to 3.5x range, because the buyer is also buying a job, not just a cash flow stream layered on top of existing management.
Asset-based valuation
This method ignores earnings and instead totals the fair market value of equipment, inventory, receivables, and other tangible assets, minus liabilities. It's the floor, not the ceiling. It matters most for asset-heavy businesses (equipment rental, manufacturing, trucking) and in liquidation or distress scenarios where the earning power of the business isn't the point, the resale value of what it owns is.
For a service business with few hard assets, an asset-based number will usually be far below what the business is actually worth as a going concern, which is exactly why it's dangerous to use in isolation. The Small Business Administration's guide to selling a business touches on this same point: buyers financing a purchase through an SBA-backed loan often need both an earnings-based number and an asset floor before a lender will sign off.
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How industry multiples actually get set
None of these multiples are pulled out of thin air, even though they can feel arbitrary from the outside. They come from actual transaction data: what similar businesses in the same industry, of similar size, actually sold for. Organizations that track small business transactions publish rough benchmark ranges by sector, and business brokers who work a specific industry daily tend to know the current range better than a generic multiple pulled from an old article.
This is also why a multiple that was accurate two years ago can be stale today. Interest rates, financing availability, and industry-specific demand all shift the multiple buyers are willing to pay, sometimes significantly within a single year. A business valued during a low-rate environment with easy SBA financing can be worth meaningfully less once borrowing costs rise, even if its own financials haven't changed at all. The Federal Reserve's data on small business lending conditions is a useful (if dry) way to sanity-check whether the financing environment is loosening or tightening around a planned sale.
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Why buyers and sellers pick different methods on purpose
A buyer has every incentive to anchor the conversation on whichever method produces the lowest defensible number. A seller has the same incentive in reverse. This isn't dishonesty, it's how negotiation works when the underlying question is genuinely ambiguous.
Where it becomes a problem is when one side presents a single method as though it's the only legitimate one. If a buyer's opening offer is based purely on asset value for a profitable consulting business with almost no physical assets, that's not a valuation, that's a negotiating tactic wearing a valuation's clothes. Knowing all four methods, and where the business actually sits industry-wise, is what lets a seller recognize the difference.
"The number that ends up on the purchase agreement is rarely the average of these methods. It's usually the SDE or EBITDA number, adjusted up or down based on how much of the business depends on the current owner personally showing up every day." - Dennis Traina, founder of 137Foundry
Growth rate and recurring revenue change the math more than people expect
Two businesses with identical trailing-twelve-month EBITDA can be worth very different amounts depending on trajectory. A business growing 20% year over year with a recurring revenue base under contract is a fundamentally different asset than one that's flat or declining, even if this year's numbers look the same on paper.
This is where a lot of back-of-envelope valuations go wrong: they anchor entirely on trailing financials and ignore the shape of the growth curve. Buyers underwriting a loan or planning an exit of their own will model out a few years, not just the most recent twelve months, which means a seller walking into a conversation with only last year's tax return is underprepared.
Building a blended range instead of chasing one number
The more useful exercise isn't picking the "correct" method, it's running all four and looking at where they cluster. If SDE, EBITDA, and revenue multiples land within a reasonably tight band and the asset-based floor sits well below that band, you likely have a credible range. If the methods are wildly scattered, that's usually a signal that something about the business (a customer concentration risk, an unusual expense structure, a recent revenue spike) needs to be understood before either side trusts the number.
A free business valuation calculator from EvvyTools runs all four methods side by side from the same inputs (revenue, profit, growth rate, industry, and recurring revenue split) so you can see the spread instead of anchoring on whichever single number you calculated first. Seeing the range is often more informative than seeing any one point estimate, because the width of that range tells you how much the valuation depends on assumptions versus hard numbers.
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What to do with the range once you have it
Once you have a blended range, the next step is understanding which value drivers would move it. Recurring revenue share, customer concentration, and owner dependency tend to move the multiple more than almost anything else in the underlying financials. A business that could run smoothly for six months without the owner present is worth a meaningfully higher multiple than an identical business that collapses the day the owner stops answering the phone.
That's also where a lot of the real work of preparing to sell happens, not in adjusting the spreadsheet, but in actually reducing owner dependency, diversifying the customer base, and converting one-off revenue into recurring contracts, months or years before a sale conversation starts. The valuation number reflects those changes; it doesn't create them. Groups like SCORE, which offers free mentoring backed by the SBA, work through exactly this kind of exit-prep timeline with owners who are a year or more out from a sale.
Getting a second opinion before you rely on any number
None of this replaces a formal appraisal for a deal of real size. A certified valuation professional, credentialed through a body like the American Society of Appraisers, can produce a defensible valuation report that holds up in a negotiation, an estate matter, or a court proceeding in a way that a self-calculated range can't. The calculator and the reasoning above are for getting oriented before that conversation, not for replacing it.
For owners who want to see how the range shifts over time, tracking these inputs quarterly against the tools directory and revisiting the calculator as the business changes is more useful than a single one-time estimate. A valuation isn't a fixed fact about a company, it's a snapshot of a formula applied to a moving target, and the target is worth watching.
Whatever number ends up in a term sheet, understanding why the four methods disagree, and which one the other side is likely to lean on, puts a seller in a stronger position than showing up with a single number and no sense of how it was built. Start with the homepage to see the rest of EvvyTools' free financial calculators if you're modeling more than just a sale price.
