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Start With How Buyers Think

To understand what you can sell your business for, you first have to understand what a buyer is actually purchasing. They are not buying your history, your hard work, or your blood and sweat. They are buying a stream of future income — and they're paying a price today that they believe will generate an acceptable return on their investment over time.

That means the calculation always starts with earnings, not revenue, not assets, and not what you need to retire. The market will pay a multiple of your earnings. Period. The only questions are: which earnings figure applies to your business, and what multiple does the market assign to a business like yours?

The Earnings Baseline: SDE vs. EBITDA

For businesses generating under roughly $2 million in annual owner benefit, the standard metric is Seller's Discretionary Earnings (SDE). This is your net profit plus your salary, personal perks run through the business, depreciation, amortization, interest, and any one-time expenses. It represents the full financial benefit to a single working owner.

For larger businesses — particularly those with professional management in place — buyers shift to EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric reflects what the business earns independent of its capital structure and without the owner's personal compensation added back, because at this scale, a hired CEO is the expectation.

The multiple applied to either metric produces your enterprise value — the starting point for your sale price.

SDE Multiples by Industry

Multiples are not uniform across industries. They reflect perceived risk, buyer demand, growth potential, and how transferable the business is to a new owner. Here are realistic ranges for common business types in the Los Angeles market:

Real-world example: A San Fernando Valley auto service center with $280,000 in SDE, a strong lease, an experienced service manager, and a loyal customer base might sell for 2.8x–3.2x — or $784,000 to $896,000. Add a second location with consistent performance and that multiple climbs further.

What Buyers Are Actually Willing to Pay

Buyers are not purely rational — but they are disciplined. Most individual buyers are looking at the business through the lens of a personal financial decision: "Can I make enough from this business to cover my loan payments, pay myself a market-rate salary, and still have profit left over?" If the answer is no at your asking price, they move on.

SBA loans — the most common financing vehicle for business acquisitions under $5 million — require the deal to pencil out at a debt service coverage ratio of 1.25x or better. That means for every dollar of annual loan payments, the business needs to generate at least $1.25 in cash flow. If your asking price produces a loan payment that the business cash flow can't support, you will struggle to find a buyer regardless of how much you want for it.

Strategic buyers — competitors, industry roll-ups, private equity — can sometimes pay more because they generate synergies that individual buyers don't have. But they also negotiate harder and take longer. For most small-to-mid-sized business owners, the buyer is an individual or a small operator, and SBA-supportable pricing is the real ceiling.

How to Maximize Your Sale Price

The gap between what a business sells for and what it could have sold for is often significant — and almost always preventable. Here's what actually moves the needle:

Clean Up Your Financials

Tax returns and P&Ls that contradict each other, cash that isn't reported, or owner perks that aren't clearly documented create doubt in a buyer's mind. Doubt leads to lower offers, longer negotiations, and deals that fall apart in due diligence. Two to three years of clean, consistent financials is one of the highest-ROI investments you can make before selling.

Reduce Owner Dependency

If the business only works because of you, buyers will pay less — or demand a long, expensive transition period — because they're buying risk. Hire or promote a manager. Document your processes. Build systems. Every step you take toward making yourself replaceable increases what someone will pay to replace you.

Strengthen Recurring Revenue

Contracts, retainers, memberships, subscriptions — any revenue that is predictable and doesn't require reselling every month is worth more to a buyer than one-time transactional revenue. If you can shift even a portion of your revenue to a recurring model before going to market, the impact on your multiple can be meaningful.

Solve the Obvious Problems First

Buyers will find your problems. They always do. The question is whether they find them during due diligence — which gives them leverage to renegotiate — or whether you've already addressed them and can demonstrate a clean, well-run operation. Deferred maintenance, unresolved litigation, lease uncertainty, or a key employee who might leave are all things worth handling before you go to market.

Time the Market and Your Own Financials

Selling on a growth trajectory — when revenue and earnings are trending up — produces better multiples than selling after a flat or down year. If last year was your best year and this year is shaping up to be even better, going to market now with strong trailing twelve-month numbers puts you in the best possible position. Waiting until after a down year to list is a costly mistake many sellers make.

Set Realistic Expectations

The businesses that sell quickly and at full price are the ones where the owner understood the market, priced appropriately, and showed up prepared. The ones that drag on — or don't sell at all — are typically overpriced relative to earnings, under-documented, or trying to sell a business that simply isn't ready to change hands.

A good broker will tell you the truth about what your business is worth, even when that number isn't what you were hoping for. That honest assessment — delivered early, with a clear plan for what you can do to improve it — is worth far more than an inflated estimate designed to get your listing.

Find Out What Your Business Can Sell For

Martin Navarro works with business owners across Los Angeles to determine accurate market value and build a plan to maximize their exit. The conversation is confidential and carries no obligation.

Get Your Confidential Assessment Call or text: 818-633-3254  ·  martin.navarro@fcbb.com