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?

Powered by Omar Kettani

Published by

Omar Kettani

I am a business broker in Toronto. I am specialized in selling businesses with less than $10 million in value. I have a master of Engineering from a top-notch French Engineering school and an MBA from the prestigious Richard Ivey Business school in the University of Western Ontario where I specialized in entrepreneurial finance. I have a long experience in banking, business ownership, marketing and finance. I dedicate my career to helping small and middle size business owners sell their businesses to the right buyers.

2 thoughts on “How to Value a Small Business?”

  1. 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.

  2. Good post. I would add that as a professional Business Broker recasting or adjusted the financials is very important indeed when valuing a small business for the purposes of sale as many owners use the business to pay for discretionary expenses like autos, travel, entertainment, etc. If you are seeking to get a quick idea what your small business might be worth for initial research purposes visit: http://www.fastbusinessvaluations.com

Leave a Reply

Your email address will not be published.