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How to Value a Small Business?

The most frequently used method in valuing a small business is Seller Discretionary Income (SDI) multiple. The SDI for the business is calculated by using the income statement and correcting it by adding back to the profit figure all perks and benefits that the owner receives from the business. Then, a multiple (generally between 1 and 2.5) is multiplied by the SDI to arrive to an approximate value. Please keep in mind that this method only gives an approximation of the asking price the seller can require for their business. The market will ultimately determine the real price as a result of supply and demand interactions. For more precise information about how to price a business for sale, please visit How to sell your business?

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This entry was posted on Monday, April 30th, 2007 at 6:26 pm and is filed under Valuing a Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “How to Value a Small Business?”

  1. Rogers Smith Says:
    April 16th, 2009 at 2:36 pm

    Thanks for the article. I think it is important to note how powerfully the selection of the multiple can affect the valuation outcome. The value results of a 2.5 multiple is far different from the results of a 1.

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