How to Value a Small Business: Methods, Multiples and a Worked Example

By the Connectyfy Deals Team · Updated 2026-10-29 · 6 min read

Key takeaways

• Most owner-run small businesses are valued as a multiple of profit — either seller’s discretionary earnings (SDE) or EBITDA.
• Before applying any multiple, normalise the profit: add back one-off costs and the owner’s personal expenses, and deduct a fair salary for the role the owner fills.
• The multiple moves up or down with risk: owner dependence, customer concentration, growth, lease security and the quality of the books.
• Valuation gives a range; the final price is negotiated. Try our free valuation calculator for a first estimate.

Valuation vs price: what you are actually working out

A valuation is an informed estimate of what a willing, well-informed buyer would pay for your business today. The price is what a real buyer actually agrees to after due diligence and negotiation. The two are related but rarely identical — a valuation gives you a defensible range to start the conversation from, and protects you from both under-pricing and scaring buyers away with an unrealistic ask.

Buyers of small and mid-sized businesses are buying a stream of future profit. Everything in a valuation comes back to two questions: how much profit will this business reliably produce for a new owner, and how risky is that profit?

Step 1: Normalise the profit

The profit on your tax return is rarely the profit a buyer will earn. Owners often run personal costs through the business, pay themselves an unusual salary, or had one-off expenses last year. Normalising means adjusting the reported figures to show what the business earns under normal, arm’s-length conditions.

• Add back one-off costs that will not recur (a legal dispute, a shop renovation, a one-time consultant).
• Add back personal expenses paid by the business (family vehicles, personal travel, family members on payroll who don’t work there).
• Adjust the owner’s pay: if you take no salary, deduct the market cost of a manager to do your job; if you pay yourself well above market, add back the excess.
• Adjust related-party costs: rent paid to yourself or a relative should be restated at market rent.
• Exclude non-operating income such as interest on surplus cash or a one-time asset sale.

Tip: Every add-back must be provable. Buyers and their CAs will ask for invoices, bank statements and GST returns to support each adjustment, so keep the evidence ready.

Step 2: Choose the right method

There is no single correct method. Professional valuers usually calculate two or three and reconcile them. These are the five you will meet most often:

For most businesses listed on marketplaces, an SDE or EBITDA multiple is the main method, cross-checked against the value of the assets. A business should rarely sell for less than its net assets, and an asset valuation sets that floor.

Step 3: Pick a multiple that reflects risk

The multiple is where judgement comes in. It reflects how confident a buyer can be that today’s profit will continue — and grow — after you leave. Small owner-run businesses typically trade at lower multiples than larger companies with professional management, because more of their value walks out of the door with the owner.

Factors that increase the multiple:

• Several years of steady or rising profit, backed by audited accounts and GST returns that match.
• A team that runs day-to-day operations without the owner.
• Recurring or contracted revenue, and a broad customer base.
• A long, transferable lease on a good location.
• Registered trademarks, documented processes and clean compliance.

Factors that decrease the multiple:

• Heavy dependence on the owner’s personal relationships or skills.
• One or two customers making up a large share of revenue.
• Declining sales, or profit that relies on a single product or supplier.
• Cash sales that don’t appear in the books (buyers will not pay for profit they cannot verify).
• A short or non-transferable lease, pending litigation, or tax notices.

A worked example

Here is an illustrative example of a café owned and run by its founder. The numbers are hypothetical, chosen to show the mechanics.

If comparable owner-run cafés in the same city have sold for between 1.5× and 2.5× SDE, the café’s indicative value is roughly ₹35 lakh to ₹59 lakh. Where it lands in that range depends on the risk factors above: a long lease, a strong delivery-app rating and a head chef who is staying would push it towards the top; a lease expiring next year would pull it down.

Finally, check the result against the assets. If the kitchen equipment, fit-out and deposits are worth ₹20 lakh, the profit-based value comfortably exceeds the asset floor — a sign the business has real goodwill.

Tip: Multiples vary widely by sector, size, city and market conditions. Use real comparable deals, or a valuer who has them, rather than a figure from the internet — including the one in this example.

Common valuation mistakes

• Valuing on revenue for a low-margin traditional business. Buyers pay for profit, not turnover.
• Counting future plans as current value. Buyers pay for what the business does today; the upside is their reward for taking the risk.
• Ignoring working capital. Agree whether stock, receivables and payables transfer with the business, and how they are priced.
• Treating unrecorded cash as profit. If it is not in the books and returns, it will not be in the price.
• Anchoring on what you invested. What you spent building the business doesn’t determine what it is worth to a buyer.

When to get a professional valuation

A quick estimate is enough to decide whether selling is worth exploring. Get a formal valuation from a registered valuer or chartered accountant when the deal is large, when there are several shareholders to satisfy, when the sale involves shares of a company (regulatory valuation rules may apply), or when you need the figure to stand up to a lender or the tax authorities.

If you are preparing to sell, start with our free business valuation calculator, then read how to sell your business and the documents you will need.

Frequently asked questions

What is the most common way to value a small business?

Owner-run small businesses are most often valued as a multiple of seller’s discretionary earnings (SDE) — normalised profit before the owner’s salary. Businesses with professional management are usually valued on an EBITDA multiple instead.

How many times profit is a small business worth?

It depends on sector, size, growth and risk. Small owner-dependent businesses tend to sell at lower multiples than larger companies with a management team and recurring revenue. Use comparable deals in your sector and city rather than a single rule of thumb.

Can I value a loss-making business?

Yes. Loss-making businesses are usually valued on their assets, or on a revenue multiple if they are growing fast with recurring revenue. A buyer may also pay for specific assets such as a brand, licences, location or customer list.

Is there a free business valuation calculator?

Yes — Connectyfy’s free valuation calculator gives an indicative range from your revenue and EBITDA in a few minutes.

Next steps on Connectyfy

• Value your business free
• How selling on Connectyfy works
• See businesses for sale