Value a Business

How Much Is a Business Worth? What Revenue and Profit Actually Tell You

Q: How much is a business worth that makes $300,000 a year?

If 'makes $300,000' means $300,000 of documented SDE, the business is typically priced as a multiple of that figure. Q1 2026 Market Pulse medians ran 2.8 times SDE for businesses selling between $500,000 and $1 million and 3.0 times from $1 million to $2 million. Transferability, concentration, and documentation decide where a specific business lands.

TL;DR: Revenue alone cannot tell you what a business is worth. Businesses sell on a multiple of earnings, SDE for Main Street companies and EBITDA for the lower middle market, adjusted up or down for risk. In the first quarter of 2026, median multiples ran 2.0 times SDE for businesses selling under $500,000, 2.8 times from $500,000 to $1 million, 3.0 times from $1 million to $2 million, and 4.0 times EBITDA for deals from $2 million to $5 million, per the IBBA and M&A Source Market Pulse. Two businesses with identical sales can be worth wildly different amounts. The number that matters is what the owner actually keeps, and how safely a buyer can keep earning it.

“How much is my business worth?” is the first question I hear from nearly every owner, and the honest answer starts with a correction: the question behind the question is almost never about revenue. In fifteen years of valuing and selling businesses across the Gulf South, I have watched owners anchor on their top line, on a rule of thumb from a friend, or on what a competitor supposedly got. Buyers do none of that. Buyers price earnings, and they price risk. This article walks through what revenue and profit actually tell you, which earnings number applies to your size of business, what moves the multiple, and why the only honest answer to “what is MY business worth” is a real valuation.

Key Takeaways

Businesses sell on a multiple of earnings, not a percentage of revenue. Two companies with the same sales can be worth several times more or less than each other.

Main Street businesses (under roughly $5 million in revenue or $2 million in EBITDA) price on SDE; lower middle market companies price on EBITDA.

Q1 2026 median multiples: 2.0x SDE under $500,000, 2.8x from $500,000 to $1 million, 3.0x from $1 million to $2 million, and 4.0x EBITDA from $2 million to $5 million (IBBA and M&A Source Market Pulse).

Margin, owner dependence, customer concentration, and the quality of your documentation move the multiple up or down.

Rules of thumb set expectations; valuations set prices. The gap between the two is the leading reason deals die.

Why can’t revenue alone tell you what a business is worth?

Because revenue is what comes in, and buyers pay for what the owner keeps. A business with $1,000,000 in sales and $250,000 of seller’s discretionary earnings is a fundamentally different asset from a business with $1,000,000 in sales and $60,000 of SDE, even though a “percent of revenue” rule of thumb would price them identically. The first owner has margin, pricing power, or cost discipline. The second may have a job that barely pays for itself.

The market data makes the point plainly. BizBuySell’s 2025 Year-in-Review reported that closed Main Street transactions had median revenue of about $703,000 and median SDE of roughly $159,000, and sold at an average of about 2.6 times SDE and 0.69 times revenue. That 0.69x figure is a historical average across thousands of closed deals, not a pricing formula. The businesses inside that average ranged from fractions of revenue to more than revenue, and the spread is explained almost entirely by earnings and risk, not by sales.

Revenue rules of thumb mislead for a second reason: they ignore what has to be true for the cash flow to survive a change of ownership. A buyer inheriting thin margins, one dominant customer, or a business that cannot run a week without the seller is buying risk, and risk gets priced as dollars off.

Citation capsule: Per BizBuySell’s 2025 Year-in-Review, closed Main Street transactions had median revenue of about $703,000 and median cash flow (SDE) of roughly $159,000, and sold at an average of about 2.6 times SDE and 0.69 times revenue. The revenue figure is a descriptive average across closed deals, not a pricing rule; price tracks earnings, not sales.

SDE or EBITDA: which earnings number applies to your business?

It depends on your size. In our practice, Main Street means businesses under roughly $5 million in revenue or $2 million in EBITDA, and those businesses price on seller’s discretionary earnings. SDE starts with pre-tax profit and adds back interest, depreciation, amortization, non-recurring items, and one working owner’s entire compensation and benefits. The logic: a Main Street buyer typically steps into the owner’s seat, so the owner’s pay is part of what the buyer purchases.

Larger companies price on EBITDA, which treats management compensation as an operating cost because the buyer expects to pay a manager, not become one. The IBBA and M&A Source Market Pulse draws the reporting line at $2 million in purchase price: deals below it are quoted on SDE, and deals from $2 million to $50 million on EBITDA.

Either way, the number buyers use is not the one on your tax return. It is a recast figure, with every add-back documented and defensible. Recasting your financial statements is where real valuations begin, because an undocumented add-back is an add-back a buyer’s lender will strike.

What moves the multiple up or down?

Start with the market medians. The Q1 2026 Market Pulse reported median multiples of 2.0 times SDE for businesses selling under $500,000, 2.8 times from $500,000 to $1 million, 3.0 times from $1 million to $2 million, and 4.0 times EBITDA for lower middle market deals from $2 million to $5 million. Those are midpoints, not promises. Individual businesses land above or below them based on how risky the earnings look to the person writing the check.

Four factors do most of the moving:

Margin quality. Earnings that come with healthy, stable margins signal pricing power. Earnings scraped from a thin margin signal fragility, because a small cost shock erases them.
Owner dependence. A business that runs through the owner, where customers, bids, and decisions all trace to one person, earns a lower multiple than one with a management layer and documented processes.
Customer concentration. One customer above roughly 15 percent of revenue draws scrutiny in our practice. Buyers ask what one phone call could do to the cash flow.
Documentation quality. Verified earnings get paid for. GF Data’s fall 2025 analysis of 360 transactions found lower middle market deals with a sell-side quality of earnings report closed at an average 7.4 times EBITDA versus 7.0 times without one.

Our finding: In our Gulf South engagements, the multiple is best understood as a grade on risk. Two businesses with the same earnings do not get the same grade. The one a buyer can operate, finance, and grow without the seller in the building earns the top of its range. The one that depends on the seller’s relationships and memory earns the bottom, and sometimes no offer at all.

What is MY business worth? The only honest answer

The only honest answer is a real valuation of your specific business: your recast earnings, your industry’s comparable sales, your risk profile, your asset base. Everything above tells you how the market thinks. It cannot tell you your number, because your number depends on facts no article can see.

The cost of guessing is well documented. Pepperdine’s 2025 Private Capital Markets Report found roughly 31 percent of sell-side engagements ended without a transaction, with the valuation gap between sellers and buyers the leading reason at 26 percent. Most of those gaps were born long before the deal, when an owner anchored to a rule of thumb and the market never agreed. A defensible valuation closes the gap before it opens: it tells you what buyers and their lenders will underwrite, and it shows you which risk factors are suppressing your multiple while you still have time to fix them. That is exactly what a formal business valuation is for, and it is why we recommend getting your number a year or more before you want to see a letter of intent.

The report that priced a business at 15 times earnings

A story from our practice, details withheld to protect confidentiality. An owner recently brought us a valuation report that another office had prepared on their business. It priced the company off revenue, using the rules of thumb published for that industry. On paper the math was tidy. In the real world it could not work.

When we translated that revenue-based price back into earnings, it valued the company at more than 15 times what the business actually earns. Put plainly, a buyer paying that price would have to work in the business for 15 years just to earn back what they paid, before taking a salary and before paying the bank. No lender will finance that, and no buyer of a Main Street business, one doing up to $5 million in revenue, will sign up for it.

The rule of thumb was not wrong as a statistic. It described an average across many sales in that industry. It was wrong as a price, because it said nothing about this company’s margins, how much of the business depended on the owner, or what a buyer needs to earn to make the deal pencil. Pricing a business off revenue, or applying a net profit figure blindly, is how owners end up anchored to a number nobody will pay.

Every industry is different. A few really do trade on gross revenue, but that is rare. Most businesses are priced on what they earn, and the multiple on those earnings moves with the factors that make buyers willing to pay more: healthy margins, customer relationships that transfer, and a team that can run the business without the owner. Knowing how your industry is valued, and which of those factors buyers in your industry reward, is the difference between a number that sells and a number that sits.

Business Worth FAQ

How much is a business worth with $1,000,000 in sales?

It depends on earnings, not sales. A business with $1,000,000 in sales and $250,000 of SDE is typically worth a multiple of that $250,000, not of the revenue. Per the Q1 2026 IBBA and M&A Source Market Pulse, Main Street medians ran 2.0 to 3.0 times SDE by deal size. Margin, owner dependence, and customer concentration set the multiple.

How much is a business worth with $500,000 in sales?

Whatever its earnings and risk profile support. Two businesses with $500,000 in sales can be worth very different amounts depending on what the owner keeps. BizBuySell’s 2025 Year-in-Review put the average Main Street sale at about 2.6 times SDE, so the SDE figure, documented through recast financials, drives the price far more than the top line does.

How much is a business worth that makes $300,000 a year?

If “makes $300,000” means $300,000 of documented SDE, the business is typically priced as a multiple of that figure. Q1 2026 Market Pulse medians ran 2.8 times SDE for businesses selling between $500,000 and $1 million and 3.0 times from $1 million to $2 million. Transferability, concentration, and documentation decide where a specific business lands.

Is a business worth a percentage of its revenue?

No. Revenue percentages describe past averages, not prices. BizBuySell’s 2025 data shows Main Street deals averaged about 0.69 times revenue, but that average hides an enormous spread driven by earnings and risk. Buyers and their lenders underwrite cash flow. A revenue rule of thumb cannot tell you whether yours is strong, transferable, or fragile.

What is the difference between SDE and EBITDA in a valuation?

SDE adds back one working owner’s full compensation, because a Main Street buyer usually replaces the owner. EBITDA treats management pay as an operating cost. The IBBA and M&A Source Market Pulse quotes deals under $2 million in purchase price on SDE and deals from $2 million to $50 million on EBITDA.

Conclusion: price the earnings, not the top line

Revenue tells you how big a business is. Earnings, and the risk around them, tell you what it is worth. The market’s medians give you the neighborhood, but your number depends on your margins, your management depth, your customer base, and your books. Guess at it and you join the deals that die over a valuation gap. Measure it and you either sell with confidence or get a clear plan to grow the number first. If you want to know where you actually stand, start with our exit readiness assessment, or book a free consultation and we will talk through what your earnings would support today.

Joel F. Duran has 15+ years of M&A and business brokerage experience and holds the CM&AA, M&AMI, CM&AP, CEPA, CVGA, CVB, CAIM, and CMSBB designations. Duran Advisors serves upper Main Street and lower middle market businesses across the Gulf South, including New Orleans Metro, the North Shore, Baton Rouge, Houma-Thibodaux, and South Mississippi. The client story in this article is a composite drawn from real engagements, with details changed to protect confidentiality.

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Sources

IBBA & M&A Source, Market Pulse Survey, Q1 2026 (56th edition, published May 2026): median SDE and EBITDA multiples by deal size and the SDE-to-EBITDA reporting convention at $2 million in purchase price.
BizBuySell, 2025 Year-in-Review: median Main Street revenue (about $703,000), median SDE (about $159,000), and average multiples of about 2.6 times SDE and 0.69 times revenue for closed transactions.
Pepperdine Graziadio Business School, 2025 Private Capital Markets Report: share of sell-side engagements ending without a transaction (about 31 percent) and the valuation gap as the leading deal-failure reason (26 percent).
GF Data, as reported in ACG’s Middle Market Growth, “Why More Sellers Are Using Quality of Earnings Reports for M&A Deals” (Fall 2025; 360 transactions): 7.4 times versus 7.0 times average EBITDA for deals with and without sell-side quality of earnings reports.