Written by: Andrew Cohen, CFA, CPA, Managing Partner, Condesa Financial Group | Last updated: October 13, 2026

Key Takeaways

• A valuation multiple expresses a company’s value as a ratio of SDE, EBITDA, or revenue. The range shifts by industry and size because buyers price risk, growth, and transferability differently across sectors and deal sizes.
• Public-company multiples from sources like the NYU Stern Damodaran dataset sit several turns above private SME transaction multiples. Applying a public multiple directly to a private SME produces a valuation that usually fails buyer diligence.
• The same business can show a 3.0x SDE multiple and a 4.8x EBITDA multiple on the same dollar price. The right metric depends on deal size and buyer type. IBBA uses $2 million of purchase price as its switch point.
• Five documented factors move a multiple within its industry range: earnings size, owner dependency, recurring revenue, customer concentration, and growth rate. Each carries a measurable turn-level impact.
• Condesa Financial provides fractional CFO and financial modeling services to SMEs that need to build and defend a valuation for a sale, acquisition, fundraising round, or lender negotiation.

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Why The Number Matters More Than The Definition

Owners preparing to sell, buyers evaluating an acquisition, and advisors defending a number to a lender all face the same issue. The industry range is wide, and the range alone does not show where a specific company lands. A 3x–7x spread serves as a starting point, not a finished valuation. A defensible number requires the right earnings basis, a named benchmark, and adjustments for company-specific factors.

The width of the range reflects company-specific risk. The data itself is reliable. Two businesses in the same industry with identical EBITDA can trade two to three full turns apart based on owner dependency, customer concentration, revenue predictability, and financial documentation quality. Because those factors are knowable before a sale, owners and advisors who assess them early can defend a number under scrutiny for a buyer, a lender, or a partner. A fractional CFO or financial modeling specialist becomes useful when the valuation must hold up in diligence.

This article covers:

• Public Vs. Private Multiple Gap. Public-company multiples from sources like the NYU Stern Damodaran dataset sit several turns above private SME transaction multiples. Understanding why prevents a common and costly anchoring error.
• SDE Vs. EBITDA. The same business can show a 3.0x SDE multiple and a 4.8x EBITDA multiple on the same dollar price. The right metric depends on deal size and buyer type.
• Industry Benchmark Table. A cited table of private-company transaction ranges by sector, drawn from named sources with stated sample sizes and dates.
• Worked Revenue Examples. Transparent calculations for businesses with $300,000, $500,000, $1 million, and $2 million in annual sales.
• Five Factors That Move A Multiple. Earnings size, owner dependency, recurring revenue, customer concentration, and growth rate. Each factor has documented turn-level impact.
• Negotiation Use. How a defensible point within the range functions differently from a midpoint estimate when a buyer pushes back.

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Public Company vs. Private Company Multiples: Why the Gap?

Two distinct data ecosystems publish valuation multiples, and they measure different things. Three datasets illustrate the gap. The NYU Stern Damodaran January 2026 dataset shows US public companies excluding financials trading at 16.95x EV/EBITDA across 4,822 positive-EBITDA firms. BizBuySell’s full-year 2025 closed-sale data across 9,586 transactions shows small US businesses selling at an average of 2.61x SDE. IBBA and M&A Source’s Market Pulse Q2 2026 reports EBITDA multiples of 4.0x for the $2M–$5M enterprise-value segment and 5.8x for the $5M–$50M segment.

The gap between public and private multiples reflects four structural differences: liquidity, scale, transparency, and control. Public multiples price a liquid minority position in a large, audited, institutionally followed company. Private transaction multiples price control of an illiquid business that may carry customer concentration, owner dependence, and limited management depth. Private companies typically trade at a 20%–40% discount to public-market medians for these reasons. For sub-$5M EBITDA businesses, the discount is often larger.

Applying a public-company multiple to a private SME without adjustment produces a valuation that rarely survives buyer diligence. The practical implication is clear. Anchor to private transaction data from named sources such as IBBA Market Pulse, BizBuySell, and GF Data. Use public-company data only as directional context for which sectors attract premium pricing.

DIY valuation, basic bookkeeping, or fragmented vendor support can produce a number. That number may not hold under scrutiny. Structured financial modeling and fractional CFO oversight add a layer of defensibility that matters most in M&A diligence, fundraising, multi-entity operations, and higher-stakes negotiations where a buyer’s advisor will challenge every add-back and every multiple selection.

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SDE vs. EBITDA Multiple: Which Applies to Your Business?

Seller’s Discretionary Earnings (SDE) starts with net income and adds back the owner’s full compensation, plus interest, taxes, depreciation, amortization, and non-recurring expenses. It measures the total economic benefit available to a single owner-operator who works in the business full-time. EBITDA does not add back owner compensation. It measures operating earnings available to a buyer who installs professional management at market rates.

The practical consequence is straightforward. A business with $400,000 of SDE that requires a $150,000 general manager has $250,000 of EBITDA. A $1.2 million sale price is simultaneously 3.0x SDE and 4.8x EBITDA. The same transaction reads as two different multiples depending on which metric sits in the denominator.

IBBA uses $2 million of purchase price as its switch point. Deals of $1 million to $2 million can fall either way depending on the buyer. Below that threshold, buyers are typically individuals purchasing a job and a business, so they think in SDE. Above it, buyers are private equity groups, family offices, and strategic acquirers purchasing cash flow they will manage from a distance, so they think in EBITDA. The metric should align with owner involvement and the post-closing operating model.

For a deeper walkthrough of both methods with worked calculations, see Business Valuation Calculator: SDE and EBITDA Methods.

Business Valuation Multiples by Industry: A Cited Benchmark Table

The table below shows how wide the private-company range is within each sector and how much higher public-company multiples sit above it. Use it to locate your industry’s starting range, then apply the company-specific adjustments in Step 3. The public and private figures use different baselines, so treat the public column as context rather than a direct comparison.

How to Choose the Right Multiple for Your Industry

With an industry range in hand, the next task is narrowing it to a defensible point. A four-step framework moves a business from that range to a specific estimate.

Step 1: Determine the earnings basis. Confirm whether the business should be valued on SDE or EBITDA. The decision turns on deal size and buyer type, not revenue alone. Businesses selling for under approximately $2 million often use SDE. Those above that threshold increasingly use EBITDA. Businesses in the $1M–$2M zone should be modeled both ways. See How to Value a Small Business: A 7-Step Playbook for a full walkthrough of the normalization process.

Step 2: Identify the industry benchmark range from named sources. Use private-company transaction data such as IBBA Market Pulse, BizBuySell, and GF Data as the primary anchor. Note the sample size, date, and enterprise-value band for each cited figure. A range without a stated sample and period does not function as a benchmark.

Step 3: Adjust for company-specific factors. Five factors are documented as moving a multiple within its industry range:

• Earnings size. A $1M EBITDA business in any industry trades 1–2 turns lower than a $5M EBITDA business in the same industry. Larger businesses attract more institutional buyers, which creates competitive tension that supports higher multiples.
• Owner dependency. A fully independent business that can run without the owner for 90 days can add up to 1.0 turn versus a very dependent business. Owner dependency is the single most common reason a business sells below its industry median.
• Recurring revenue. A business with 55% or more contractual recurring revenue can add 1–2 turns versus a project-based peer with identical EBITDA. Buyers financing acquisitions with debt need predictable cash flows to service that debt.
• Customer concentration. A top customer representing 30% or more of revenue typically discounts the multiple by 1–1.5 turns. Above 50%, the discount can reach 2–3 turns or prevent a deal entirely.
• Growth rate. Sustainable growth above 15% year-over-year can add 0.8–1.5 turns. Declining revenue of 5% or more can reduce the multiple by 1.0–1.5 turns.

Step 4: Select a defensible point within the range. The defensible point is a specific position within the range that the company’s profile supports. Earnings quality, recurring revenue percentage, owner independence, customer diversification, and growth trajectory all inform that choice. The rationale must be documented and explainable to a buyer’s advisor.

How Much Is a Business Worth With $1 Million in Sales?

Revenue alone does not determine value. A buyer reconstructs normalized earnings, applies a transaction-derived multiple, and tests financing feasibility. The calculations below use published transaction ranges and require a separate estimate of sustainable SDE or EBITDA for each business.

$1,000,000 in annual sales. BizBuySell’s 2025 data shows an all-sector average revenue multiple of 0.69x, implying roughly $690,000 in enterprise value. This serves as a cross-check, not a primary method. A more reliable approach estimates SDE. If a $1M-revenue service business generates $200,000 in SDE, the IBBA Q2 2026 median of 2.8x for the $500K–$1M deal band implies approximately $560,000. If SDE is $350,000, the same multiple implies $980,000. The earnings figure, not the revenue figure, drives the outcome.

$500,000 in annual sales. At this revenue level, most businesses generate SDE well below $500,000. Using BizBuySell’s 2025 median SDE of $158,950 on median revenue of $703,000 as a rough margin proxy, a $500,000-revenue business might generate $80,000–$120,000 in SDE. At the IBBA Q2 2026 median of 2.0x for deals under $500K, that implies an enterprise value of $160,000–$240,000. Industry and earnings quality can shift that range materially.

$300,000 in annual sales. At this scale, most businesses fall into the distressed or early-stage category. BizBuySell’s 2025 data shows restaurants, the lowest-multiple category, averaging 2.26x SDE. A $300,000-revenue restaurant generating $40,000 in SDE at 2.26x implies approximately $90,000. A service business at the same revenue with $80,000 in SDE at 2.5x implies $200,000. Earnings margin and industry, not revenue, drive the spread.

$2,000,000 in annual sales. At $2M in revenue, the valuation metric may shift from SDE to EBITDA depending on management depth. A $2M-revenue professional services firm generating $400,000 in SDE, valued at the IBBA Q2 2026 median of 3.1x for the $1M–$2M deal band, implies approximately $1.24 million. If that same business has a management team in place and $280,000 in EBITDA, the IBBA Q2 2026 median of 4.0x for the $2M–$5M EBITDA band implies approximately $1.12 million. The two metrics produce similar outcomes from different buyer pools.

Common Mistakes When Applying Industry Multiples

Four errors appear consistently across deals that reprice in diligence or fail to close.

Confusing SDE and EBITDA. Using SDE when a buyer expects EBITDA, or the reverse, produces a multiple that is mathematically correct but commercially misleading. The metric must match the buyer’s expected post-closing operating model. A business with $400,000 SDE and $250,000 EBITDA only reads as a 3.0x EBITDA business if the buyer installs a $150,000 manager and the price is $750,000.

Using public-company multiples for a private SME. Applying the 16.95x public multiple cited earlier to a $500,000-EBITDA private business produces an $8.5M implied value that no private buyer will pay. Public multiples require a 20%–40% or greater discount before application to private SMEs.

Relying on a single industry average without company-specific adjustment. The industry average describes the median transaction, not a specific business. A manufacturing company with $1M EBITDA and 80% revenue concentration in a single customer does not have the same value as a manufacturing company with $1M EBITDA and 200 customers, even though both produce the same rule-of-thumb estimate from the same multiple.

Choosing support based only on price. A discount accounting firm that cannot normalize earnings correctly, document add-backs, or build a defensible financial model creates a false economy. Cheap support often leads to an incorrect earnings figure. The multiple applied to that figure produces a valuation error that compounds at every turn of the multiple.

Readiness and Evaluation Framework

Owners reach a point where informal estimates are no longer enough and structured valuation support becomes necessary. Several triggers signal that shift.

• An upcoming sale or recapitalization where the multiple will be negotiated with a sophisticated buyer
• An acquisition where the buyer needs to defend the purchase price to lenders or investors
• A fundraising round where the valuation must hold up under investor diligence
• A lender negotiation where the earnings basis and multiple selection affect loan sizing
• A partner dispute or buy-sell agreement where an independent, documented valuation is required
• Weak internal financial reporting that cannot support a normalized earnings calculation

Three diagnostic questions help assess readiness and next steps.

• Do you have a defensible financial model that a buyer’s advisor can audit and verify?
• Can you explain your multiple selection to a buyer, including the source, the sample size, and the company-specific adjustments applied?
• Is your earnings basis SDE or EBITDA, and have you confirmed that the buyer pool for your business uses the same metric?

For businesses preparing for a fundraising event specifically, see Business Valuation For Fundraising: A Founder’s Guide.

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Working With External Professional Support

Choosing the right external financial partner shapes how credible your valuation looks in front of buyers and lenders. Several criteria matter regardless of provider.

• Expertise in financial modeling and fractional CFO work. The provider should have demonstrated experience building deal-level financial models, not just bookkeeping or tax preparation. They should explain the methodology behind every assumption.
• Communication quality and responsiveness. Valuation work involves iterative back-and-forth with buyers, lenders, and advisors. A provider who responds promptly and translates complex finance for non-finance stakeholders reduces risk in a time-sensitive process.
• Systems familiarity. Providers working across QuickBooks, NetSuite, Ramp, and Gusto can integrate with existing financial infrastructure without requiring a parallel data migration before work begins.
• Scope clarity. The engagement should distinguish between accounting operations, FP&A, financial modeling, and fractional CFO oversight, and price each layer accordingly. Clear scope makes it easier to assess value and escalate when the work requires a different skill level.
• Coordination across accounting and finance needs. A fractional CFO directing an accounting team produces more defensible output than either function operating independently. The CFO can validate the earnings normalization that the multiple is applied to.

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Frequently Asked Questions

What Multiple Does a Small Business Sell For?

Most small owner-operated businesses in the United States sell between 2.0x and 3.3x SDE. This range is based on BizBuySell’s full-year 2025 closed-sale data across 9,586 transactions, which reported an average of 2.61x SDE and a median sale price of $350,000. The IBBA Market Pulse Q2 2026 breaks this down by deal size: 2.0x SDE for businesses under $500,000 in purchase price, 2.8x for $500,000–$1 million, and 3.1x for $1 million–$2 million. Above $2 million, the metric shifts to EBITDA and multiples step up to 4.0x–5.8x depending on deal size. High-outlier categories such as car washes at 4.73x SDE and laundromats at 4.12x reflect asset characteristics and buyer dynamics specific to those industries. A multiple below 2.0x usually signals owner dependency, unreliable financial records, or customer concentration risk.

Is a Business Worth 3 Times Profit?

Three times profit can work as a rough estimate for a small owner-operated business, but the accuracy depends entirely on how you define profit and which buyer pool is relevant. If profit is net income before the owner’s salary, the correct metric is SDE, which adds back owner compensation and produces a larger earnings base. At a 3.0x SDE multiple, a business with $200,000 of net income and $120,000 of owner compensation has $320,000 of SDE and an implied value of $960,000. If the business has a management team and profit approximates EBITDA, a 3.0x multiple sits below the market median for most industries above $1M in earnings. The IBBA Q2 2026 median for the $2M–$5M enterprise-value band is 4.0x EBITDA. Three times functions as a conversation starter, not a final conclusion.

Which Metric Should I Use for a $1M–$2M Business?

SDE applies when the buyer is an individual who will replace the owner and work in the business. EBITDA applies when the business has a management team in place or the buyer will install one. The practical switch point is approximately $2 million in purchase price, though deals in the $1M–$2M range can fall either way depending on the buyer. The $400,000-SDE example above shows how the same price can read as 3.0x SDE or 4.8x EBITDA depending on the metric. Using the wrong metric in a letter of intent or lender package creates a discrepancy that surfaces in diligence and can reprice the deal.

How Much Is a Business Worth With $2 Million in Sales?

A business with $2 million in annual sales cannot be valued from revenue alone. The value depends on normalized earnings, the applicable metric, and company-specific factors. Using BizBuySell’s all-sector average revenue multiple of 0.69x as a rough cross-check implies approximately $1.38 million. This figure is directional, not a defensible valuation. The $2M-revenue example above shows how the same business can land near $1.24M on SDE or $1.12M on EBITDA. Recurring revenue, customer concentration, and owner dependency can move the actual outcome above or below either figure by a full turn or more.

Conclusion: From Range to Defensible Number

An industry multiple is a starting point. The defensible number comes from four sequential decisions. First, select the right earnings basis, SDE or EBITDA. Second, anchor to a named private-company benchmark with a stated sample and date. Third, adjust for the five company-specific factors that move a multiple within its range. Fourth, select a point that the business’s actual profile supports. That point must be explainable to a buyer, a lender, or a partner with documented earnings normalization and a cited comparable set.

Owners and advisors who complete that process before going to market stand in a stronger position than those who anchor to a public-company multiple or a broker blog range without adjustment. The gap between a 3.0x and a 5.0x outcome on a $500,000-EBITDA business is $1 million. The gap between a defensible number and an indefensible one is often the deal itself.

Start a Valuation Conversation With Condesa

Condesa Financial Group provides fractional CFO and financial modeling services to SMEs that need to build and defend a valuation for a sale, an acquisition, a fundraising round, or a lender negotiation. Condesa’s price-competitive model is built on a nearshore Panama and Mexico City delivery team staffed with ex-Big 4 talent, operating at well-below-US-market rates while maintaining the analytical rigor that sophisticated buyers and investors require. The firm is industry-agnostic and geographically agnostic, serving clients across the United States and internationally. In a representative engagement, Condesa built financial models for two large real estate projects for Ecuador’s largest real estate developer, one raising $20 million and one raising $80 million, and both rounds closed successfully. To discuss a valuation engagement, use the Contact Us form on the Condesa website.