How to Value a Business 2026: Methods, Multiples & Examples

Most business valuations come down to one decision repeated three times: which earnings number to multiply, and by what. Get the base wrong and a profitable business looks like a side project; get the multiple wrong and you either scare off buyers or leave money on the table. This guide names the three bases, gives the real 2025-2026 multiples by business size from transaction data, anchors them against public-company benchmarks, and runs two full examples through a calculator so the math is reproducible. The target is a number you can defend across the table, with the source written on it.

1. What valuing a business actually means

A market valuation is a shorthand for a payback argument. "3x SDE" says: at current earnings, a buyer recovers their money in about three years, plus whatever upside the business adds. Every quoted multiple is that argument compressed into a single number. The work of valuing a business is making the argument explicit — choosing the earnings base, sourcing the multiple from comparable sales, and adjusting for what makes this specific business riskier or safer than the average.

The honest method has three moves, and they are the same whether the business is a plumbing company or a SaaS app:

• Pick the earnings base. Revenue, SDE, or EBITDA — each measures something different and attracts a different buyer.
• Source the multiple from real sales. Transaction datasets (BizBuySell, IBBA) report what buyers actually paid, by industry and size.
• Reconcile across bases and blend. Compute each method, then average. One base in isolation is either the seller's best case or the buyer's best case.

Skipping the reconciliation step is the most common error. A seller quotes the revenue multiple; the buyer runs SDE math; the gap kills the deal. The blend pre-empts that fight.

2. The three multiple bases: revenue, SDE, EBITDA

Revenue measures top-line traction with no regard for profit. A revenue multiple suits high-growth or pre-profit businesses where the customer base is the asset. It is the highest of the three numbers, which is exactly why it is also the easiest to overreach with.

SDE (Seller's Discretionary Earnings) is operating profit plus the owner's salary, benefits, and discretionary expenses added back. It measures the total cash benefit to a single owner-operator, so it is the default base for businesses under about $2M in value. BizBuySell labels its "cash flow" multiple as SDE divided by sale price^[2].

EBITDA is operating profit before interest, taxes, depreciation, and amortization — with no owner add-backs. It is the right base once a business has a management team or is large enough that a buyer pays market-rate salaries. EBITDA is materially lower than SDE for an owner-operated firm, which is why switching from SDE to EBITDA framing lowers the headline number.

FE International's 2025 summary puts the practical ranges at about 2x-4x SDE for small businesses and 3x-6x EBITDA for mid-market ones^[6] — ranges the transaction data below confirms.

3. Real 2025-2026 multiples by business size

The multiples are observable, not theoretical. IBBA and M&A Source's Market Pulse Q3 2025 survey reports median multiples by deal size, and the dataset switches base at $2M (SDE below, EBITDA above)^[3]:

• Under $500K: 2.0x SDE
• $500K-$1M: 2.5x SDE
• $1M-$2M: 3.0x SDE
• $2M-$5M: 4.0x EBITDA
• $5M-$50M: reported around 6.5x EBITDA

The pattern is consistent: bigger businesses earn higher multiples because they carry less key-person and concentration risk per dollar of earnings, and they draw a wider buyer pool. BizBuySell's full-year 2025 numbers show the small-business floor: across 9,586 closed sales, the median price was $350,000 on $158,950 median cash flow and $703,000 median revenue, for an average cash flow multiple of 2.61x and an average revenue multiple of just 0.69x^[1].

Industry matters within each band. BizBuySell's industry data has a service business near $1M revenue at roughly 3x SDE but one at $250k revenue closer to 1.75x, and restaurants near 2.5x over $1M but below 1.5x under $500k^[2]. Software is the outlier on the revenue base: Aventis Advisors put the private SaaS median at 3.8x EV/Revenue in 2025, up from 2.9x in 2024^[7].

4. The public-comp anchor (and why it overshoots)

The headlines you see for "software trades at 25x EBITDA" come from public-company data, and they are the wrong number to apply to a private business directly. Aswath Damodaran's NYU Stern sector dataset (data as of January 2026) puts listed Software (System & Application) at 24.48x EV/EBITDA and 11.41x EV/Sales, against a total-market 19.73x EBITDA and 3.97x sales^[4][5].

Those figures describe firms that are large, liquid, audited, and run by management teams that survive the founder leaving. A private business is none of those things, so buyers apply stacked discounts for size, illiquidity, customer concentration, and key-person dependence — commonly removing the majority of the public multiple. That is why the IBBA private-market EBITDA multiples sit at 4.0x-6.5x while the public software figure is 24.48x. Damodaran's data is the correct ceiling for the asset class, not the price of any one private deal. The full discount chain is worked through in the bootstrapped software valuation article.

5. Worked example: a Main Street service business

Scenario: a profitable owner-operated service business at the BizBuySell 2025 medians. Annual revenue $703,000, SDE $158,950, and EBITDA $115,000 (lower than SDE because it excludes the owner's salary add-back). Multiples taken straight from the data: 0.69x revenue and 2.61x SDE (the 2025 averages), with 3.0x EBITDA for a small but team-light operation.

The engine returns three midpoints: Revenue 0.69x × $703,000 = $485,070 ($363,802 to $606,338); SDE 2.61x × $158,950 = $414,860 ($331,888 to $497,831); EBITDA 3.0x × $115,000 = $345,000 ($276,000 to $414,000). The blended midpoint is $414,977 on a $323,897 to $506,056 range.

Notice the spread. The revenue method ($485,070) flatters the business; the EBITDA method ($345,000) is the operator-buyer's floor. The SDE midpoint sits almost exactly on the blend, which is expected for an owner-operated business at this size — SDE is the base the realistic buyer pool actually uses. Leading with $485,070 anchors against an audience that will run SDE math; the $414,977 blend is the number that survives their lens.

6. Worked example: a small profitable SaaS

Scenario: a bootstrapped B2B SaaS at $400,000 ARR, $180,000 SDE, $150,000 EBITDA, growing steadily. Software earns a revenue multiple a service business cannot, so the bases diverge more. Multiples: 3.0x revenue (just below the 3.8x private SaaS median, discounted for size), 4.0x SDE, and 5.0x EBITDA — inside the small-SaaS ranges that marketplaces and FE International report^[6][7].

The midpoints: Revenue 3.0x × $400,000 = $1,200,000 ($900,000 to $1,500,000); SDE 4.0x × $180,000 = $720,000 ($576,000 to $864,000); EBITDA 5.0x × $150,000 = $750,000 ($600,000 to $900,000). The blended midpoint is $890,000 on a $692,000 to $1,088,000 range.

Here the revenue method is 1.6x the EBITDA method, a far wider gap than the service business showed. That gap is the negotiation: a strategic acquirer who values the recurring customer base argues toward $1.2M, while an operator-buyer running cash-flow math anchors near $720k-$750k. The $890,000 blend is the listing number that gives both a path to "fair" from their own framing. Which base to lead with by SaaS profile is detailed in the revenue vs SDE vs EBITDA article.

7. Which method to lead with

The base should match the realistic buyer pool, not the seller's preferred number. A simple decision rule, drawn from where each multiple actually applies in the data:

• Pre-profit or high-growth (20%+) business under $1M: lead with the revenue multiple. SDE is small; EBITDA is irrelevant.
• Profitable owner-operated business under $2M: lead with SDE, blended with revenue for upside. This is where IBBA's 2.0x-3.0x SDE band lives^[3].
• Profitable business $2M-$50M with a team: lead with EBITDA. IBBA reports 4.0x-6.5x here, and buyers pay market-rate management^[3].
• SaaS at any size: run the revenue multiple alongside earnings, because software earns a revenue premium the broad market does not^[7].

Whatever the lead base, compute all three and quote the blend. The blended-range method behind the calculator is documented at the Business Valuation Calculator methodology page^[8], and the broader framework is in the how to value a small business guide. The datasets refresh — Damodaran annually each January, IBBA and BizBuySell quarterly — but the method holds: name the base, source the multiple from real sales, reconcile, and quote the number you can defend.

Frequently asked questions

How do you value a business in 2026?

Run three multiple methods and blend them. Apply a revenue multiple, an SDE multiple, and an EBITDA multiple to the business's own numbers, then average. The multiples come from real transaction data: BizBuySell's 2025 figures show an average cash flow (SDE) multiple of 2.61x and an average revenue multiple of 0.69x across 9,586 small-business sales. IBBA's Q3 2025 data scales the SDE multiple from 2.0x under $500K to 3.0x at $1M-$2M, then switches to EBITDA (4.0x to 6.5x) above $2M. The blended midpoint is the asking number a buyer can map to their preferred lens.

What multiple of SDE do small businesses sell for?

Roughly 2x to 4x SDE for owner-operated businesses, with size and industry driving the spread. IBBA's Market Pulse Q3 2025 reports median multiples of 2.0x SDE under $500K, 2.5x at $500K-$1M, and 3.0x at $1M-$2M. BizBuySell's industry data echoes this: a service business near $1M revenue commands roughly 3x SDE, while one at $250k revenue trades nearer 1.75x. Above $2M the market shifts to EBITDA multiples (4.0x at $2M-$5M, reported around 6.5x at $5M-$50M).

Should I use a revenue multiple or an earnings multiple?

Both, then reconcile. Revenue multiples suit high-growth or pre-profit businesses; earnings multiples (SDE or EBITDA) price the cash a buyer keeps and suit profitable owner-operated ones. BizBuySell's 2025 average revenue multiple was just 0.69x because most small businesses are profit-priced, not revenue-priced. SaaS is the exception: Aventis Advisors put the private SaaS median at 3.8x EV/Revenue in 2025. Compute all available bases and blend rather than picking the one that flatters your number.

What is the difference between SDE and EBITDA?

SDE (Seller's Discretionary Earnings) adds the owner's salary, benefits, and discretionary costs back to operating profit; EBITDA does not. For an owner-operated business SDE is materially higher than EBITDA, which is why small deals are quoted on SDE and larger ones on EBITDA. IBBA's data captures this: under $2M deals are reported as SDE multiples, while $2M-$50M deals are reported as EBITDA multiples, because at that size buyers pay market-rate management and no longer get the owner add-backs.

Why is the blended number better than the highest single method?

Because each base attracts a different buyer, and leading with one alienates the rest. A revenue multiple flatters; an EBITDA multiple punishes; the SDE multiple sits between for owner-operated firms. The blended midpoint is the number a revenue-anchored buyer sees as a discount and an earnings-anchored buyer sees as a defensible premium. It also survives due diligence better, because no single aggressive assumption carries the whole valuation.