Guide
Business valuation methods: which one a US buyer uses
Updated
Several methods get taught; one decides most private sale prices. Knowing which is which stops you preparing the wrong evidence for the negotiation you will actually have.
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How this calculator works
- The default multiple is 5.5x EBITDA, the median reported for deals in the $5M to $50M band by the IBBA and M&A Source Market Pulse survey for Q2 2025. It was compiled from 272 completed transactions reported by 326 business brokers and M&A advisors (IBBA and M&A Source, Market Pulse Q2 2025).
- The same survey reported a median of 2.3x for businesses selling under $500,000.
- The public company comparison is 16.95x EBITDA: the total market EV/EBITDA for US firms with positive EBITDA excluding financials. It comes from NYU Stern's Enterprise Value Multiples by Sector dataset, data as of January 2026 across 5,994 firms (NYU Stern, Damodaran). Including financials the same dataset reports 19.73x.
- Those two figures measure different things and that is the point of showing both. One is what listed companies trade at; the other is what privately held businesses actually sold for. A private business is not a small listed company, and the gap between the two lines is the combined effect of size, illiquidity, customer concentration and owner dependence.
- Main Street and lower middle market are the survey's own bands: Main Street is up to $2M and the lower middle market is $2M to $50M. Below roughly $2M, deals are usually quoted on SDE (seller's discretionary earnings, the owner's total benefit), not EBITDA. So a multiple from one basis cannot be applied to the other.
- Surplus cash and debt are treated the way a buyer treats them. Enterprise value is what the business is worth; then cash is added and debt-like items are deducted to reach what reaches shareholders. Deferred consideration, earn-outs and working capital adjustments are not modelled and routinely move the final figure.
- This is an indication, not a valuation. It applies no adjustment for sector, growth, margin, customer concentration or owner dependence, and a real valuation is mostly the work of making those adjustments.
The three approaches, in the SBA's own words
The Small Business Administration names three. An income approach, which looks at projected revenue and accounts for potential risks. A market approach, which compares your business to other similar businesses that have recently sold. And an assets approach, which subtracts total business liabilities from the total value of all assets.
The calculator on this page is the market approach in its shortest form: a multiple of earnings, drawn from what comparable businesses actually sold for. It is quick and it is what buyers quote in. It is only as good as the comparables behind the multiple, so the multiple's source and date matter more than the arithmetic.
Why the earnings figure matters more than the multiple
Owners argue about the multiple and lose money on the earnings. A half-turn of multiple on $500,000 of EBITDA is $250,000; a rejected add-back of $100,000 is $550,000 at 5.5x.
The multiple is set by the market and your size. The earnings figure is set by evidence you control, and it is where preparation actually pays.
What the IRS does with the same question
Nothing that helps price a sale, and it is worth knowing why: the tax authority cares what happened, not what a business might fetch. The IRS treats an asset sale as a transfer of separate assets, not one business. It sorts them into capital assets, depreciable and real property used in the business, and property held for sale to customers.
Each is taxed differently. Capital assets produce capital gain or loss; depreciable and real property held longer than a year produce section 1231 treatment; inventory produces ordinary income. Both buyer and seller must then use the residual method to allocate the consideration across them.
That allocation is negotiated, and it moves your after-tax proceeds without changing the headline price by a cent. It deserves as much attention as the multiple and usually gets none.
When the asset approach is the right one
Where the business is worth more dead than alive: property-heavy, plant-heavy or loss-making operations whose earnings do not justify the balance sheet. It sets a floor rather than a price.
It also matters in a share sale of a company holding significant surplus assets, because a buyer paying an earnings multiple will argue those assets are separate. Knowing which of your assets are trading and which are surplus is worth doing before the first meeting.