You think your business is worth more than it is
If you own a business, there is a very high probability that the number you have in your head for what it's worth is wrong. And it's almost certainly wrong in one direction: too high.
This isn't a character flaw; it's human nature. You built this thing, poured years of your life into it, and you know the potential. You see the trajectory. Of course you think it's valuable.
But here's the problem: what you think it's worth and what someone would actually pay for it are two very different numbers. And when that business equity sits on your personal balance sheet, alongside your index funds, your real estate, and your retirement accounts, an inflated number distorts everything.
The most common financial planning mistake business owners make isn't underfunding their 401(k) or carrying too much debt. It's overvaluing the asset that represents 50-80% of their net worth.
Studies consistently show that business owners overestimate their company's value by 50-100% or more. They value based on revenue instead of earnings. They apply multiples from tech IPOs to their landscaping company. They factor in "potential" that no buyer will ever pay for.
Why this matters for your net worth
If you're tracking your net worth, your business equity is probably the single largest, and least accurately valued, line item on your balance sheet.
Consider: you might have $400,000 in retirement accounts, $250,000 in home equity, and $80,000 in cash. Those numbers are known quantities. Then there's your business. You tell yourself it's worth $1.2 million, but if it's actually worth $600,000, your net worth isn't $1.93 million; it's $1.33 million. That's a 31% overstatement that changes your retirement timeline, your risk tolerance, and everything else.
Business equity is the one asset class where the owner sets the value, and there's no market price, no ticker, no Zillow estimate to keep you honest.
The two numbers you need to know: SDE and EBITDA
Seller's Discretionary Earnings (SDE)
SDE is the standard for businesses valued under roughly $1 million in annual earnings.
SDE = Net Income + Owner's Salary + Owner's Benefits + Interest + Depreciation + Amortization + One-Time Expenses
It represents the total financial benefit available to a single owner-operator.
EBITDA
Used for larger businesses (generally $1M+ in earnings). EBITDA does not add back the owner's salary, because at this level, the buyer will need to hire a manager.
Most small business owners should be calculating SDE, not EBITDA. Using EBITDA when you should be using SDE will significantly understate your earnings base.
The four valuation methods
1. SDE Multiple Method
Business Value = SDE x Multiple
The most common method for Main Street businesses. It's straightforward and market-driven.
2. EBITDA Multiple Method
Business Value = EBITDA x Multiple
Used for larger businesses and institutional transactions.
3. Revenue Multiple Method
Business Value = Revenue x Multiple
Most relevant for SaaS companies, high-growth businesses, or pre-profit companies with predictable recurring revenue.
4. Discounted Cash Flow (DCF)
Projects future cash flows and discounts them to present value. Theoretically precise but dangerous for small businesses because it's entirely dependent on assumptions. Appropriate discount rates for small private businesses are 20-40%, dramatically higher than the 8-12% used for public companies.
Real multiples by industry (2025-2026 data)
The median sale price for small businesses on BizBuySell was $337,750 in 2025. The average SDE multiple across all industries was 2.57x.
Main Street businesses (SDE multiples)
| Industry | SDE Multiple Range | Revenue Multiple Range |
|---|---|---|
| Restaurants | 1.5x - 3.0x | 0.3x - 0.5x |
| Retail | 2.8x - 3.0x | 0.4x - 0.8x |
| Service businesses | 2.0x - 3.3x | 0.5x - 1.0x |
| Construction / trades | 2.2x - 2.9x | 0.3x - 0.5x |
| Accounting & tax practices | 2.2x - 2.5x | 1.0x - 1.2x |
| Manufacturing | 2.5x - 3.5x | 0.4x - 0.7x |
Notice the range. A well-run restaurant with a long lease, strong cash flow, and no owner dependence might get 3x. A restaurant that falls apart without the owner in the kitchen is a 1.5x business.
Mid-market businesses (EBITDA multiples)
| Industry | EBITDA Multiple Range |
|---|---|
| Professional services | 4x - 8x (larger firms 10x-13x) |
| Healthcare / dental practices | 5x - 8x (platform deals 9x-11x) |
| Construction | 3x - 5x |
| Manufacturing | 4x - 7x |
| E-commerce | 3x - 6x |
SaaS businesses (Revenue multiples)
| Business Stage | Revenue/ARR Multiple |
|---|---|
| Bootstrapped, sub-$5M ARR | 3x - 5x |
| Equity-backed, $5M-$50M EV | 4x - 6x |
| High-growth (40%+ growth) | 7x - 10x |
| Public SaaS (median, 2025) | ~6x - 7x |
What pushes your multiple up (and what kills it)
Factors that increase your multiple
Recurring revenue. This is the single biggest multiplier enhancer. A business with 80%+ recurring revenue is dramatically more valuable than one relying on new customer acquisition each month.
Growth rate. Consistent double-digit growth earns a premium. A business growing at 30% annually can justify a multiple 2-3x higher than a comparable business growing at 5%.
Diversified customer base. No single customer over 10% of revenue.
Management independence. Can the business run without you for 90 days? If yes, your multiple goes up significantly.
Clean financials. Professionally prepared statements with clear separation between personal and business expenses.
Factors that decrease your multiple
Owner dependence. This is the number one value killer.
Customer concentration. More than 20% from one customer? Expect a discount.
Declining revenue. A declining trendline compresses multiples regardless of current year performance.
Short lease. For brick-and-mortar, a lease with 2 years remaining forces renegotiation risk onto the buyer.
The difference between a 2x and a 3.5x multiple on $300,000 in SDE is $450,000 in business value. That's not a rounding error. It's a house.
The five overvaluation mistakes
1. Valuing on revenue instead of earnings. A $2M revenue business with $150K in SDE is worth ~$385,000, not $2 million.
2. Using the wrong comparable multiples. Don't apply SaaS multiples to your HVAC business.
3. Valuing based on potential instead of performance. Buyers pay for demonstrated historical performance.
4. Inflating add-backs. That $40K in "marketing experiments" that happens every year isn't a one-time expense.
5. Ignoring owner dependence. A 3x business that collapses without you is really a 1.5x business.
When you need a formal valuation
For net worth tracking, a self-calculated estimate is fine. But formal valuations are needed for:
- 409A valuations (stock option pricing): $2,000-$10,000
- Estate and gift planning: $7,000-$15,000+
- Partner buyouts: $8,000-$50,000+
- Divorce proceedings: required by courts
- Preparing for a sale: helps set realistic expectations
For most business owners tracking net worth, a well-reasoned self-assessment using market multiples, updated annually, is the right balance of accuracy and practicality.
How to track business equity on your balance sheet
Step 1: Calculate your SDE or EBITDA
Pull last 12 months of financials. Be conservative with add-backs.
Step 2: Pick the right multiple
Use industry tables. Honestly assess where you fall within the range.
Step 3: Apply a conservatism discount
Discount by 20-30% for illiquidity, transaction costs (broker commissions of 8-12%), and market uncertainty.
Step 4: Use this formula
Conservative Business Equity = (Trailing 12-Month SDE x Low-End Industry Multiple) x 0.75
Example: $250,000 SDE x 2.2x x 0.75 = $412,500
Step 5: Update annually
Recalculate once a year with updated financials.
In Steady Wealth, create your business as an asset under the Business Equity category. Enter your conservative calculated value. Update it once a year after you close your books.
The bottom line
Your business might be the most valuable thing you own. It deserves to be valued with the same rigor you apply to your investment portfolio.
Know your SDE, know your industry multiples, and be honest about what drives your number up or down. Apply a conservatism discount, put the number on your balance sheet, and update it once a year.
A business owner who underestimates their company's value by 10% makes slightly conservative financial plans. A business owner who overestimates by 50% makes dangerous ones. Err on the side of the first.
The goal of tracking your net worth isn't to feel good about a big number. It's to see reality clearly so you can make better decisions.