The asking price is not the value. It's the seller's opening position, and first-time buyers overpay by treating it as a fact. What you should actually pay is a multiple of the business's real earnings, adjusted for how risky and transferable those earnings are.
For most owner-operated businesses, buyers value on Seller's Discretionary Earnings (SDE) — net profit with the owner's salary, perks, one-time costs, and non-cash expenses added back. It answers your real question: how much will this business put in your pocket? Larger businesses (generally above a single owner-operator, or roughly $1M+ in earnings) are valued on EBITDA, because you'll hire management.
Verify the seller's earnings number against tax returns and bank statements before you trust it. "Add-backs" are where sellers inflate value — scrutinize every one.
A business with $300,000 in SDE at a 3x multiple is a $900,000 purchase. You pay a higher multiple for lower risk:
You pay a lower multiple — or walk — when the business is owner-dependent, has concentrated customers, shows decline, or has messy books.
| Industry | Usual basis | General range |
|---|---|---|
| HVAC | SDE | ~2x – 4x |
| Plumbing | SDE | ~2x – 4x |
| Electrical | SDE | ~2x – 4x |
| Landscaping | SDE | ~1.5x – 3.5x |
| Auto repair | SDE | ~2x – 3.5x |
| Restaurants | SDE | ~1.5x – 3x |
These vary widely. The trades hold value because demand is steady and recurring revenue is common; restaurants trade lower because risk is higher. Always confirm with a professional valuation and your own due diligence.
A low multiple on a business that collapses when the owner leaves is a bad deal; a fair multiple on a business with recurring revenue and a stable crew is a good one. Price is what you negotiate; value is what survives the transition.
Pay a multiple of the business's real earnings (SDE for owner-run businesses, EBITDA for larger ones), adjusted for risk — not the asking price. Trades businesses commonly trade around 2x–4x SDE; verify with a professional valuation and due diligence.
HVAC, plumbing, and electrical businesses generally trade around 2x–4x SDE, higher for larger firms with recurring revenue. These are general ranges, not appraisals.
No. The asking price is the seller's opening position. The real value is a defensible multiple of verified earnings, adjusted for how dependent the business is on the current owner.