Small & Mid-Market Business Valuation in 2026
Valuing a private enterprise involves determining what a willing buyer would pay in an arms-length transaction. For companies generating under $5M in revenue, the standard methodology relies on Seller's Discretionary Earnings (SDE). For companies generating over $5M, EBITDA multiples dominate.
In 2026 M&A markets, businesses with documented operating procedures, recurring contractual revenue, and diversified customer bases command multiple premiums 25–40% higher than owner-dependent peers.
Valuation Multiples by Sector (2026 Reference)
The following reference table outlines typical SDE / EBITDA transaction multiples:
| Industry Sector | Typical Multiple Range | Key Value Drivers |
|---|---|---|
| B2B SaaS / Software | 5.0x – 10.0x EBITDA | Low churn, net revenue retention >110%, ARR scale |
| E-Commerce / Direct-to-Consumer | 2.5x – 4.0x SDE | Proprietary brand, repeat customer rate, clean supply chain |
| Commercial HVAC / Home Services | 3.5x – 5.5x SDE | Maintenance contracts, licensed technician density |
| Professional Services & Consulting | 2.5x – 4.0x SDE | Low owner dependency, multi-year retained accounts |
| Manufacturing & Distribution | 4.0x – 6.5x EBITDA | Proprietary tooling, long-term vendor agreements |
The Valuation Equations
\text{Enterprise Value (EV)} = \text{Adjusted EBITDA or SDE} \times \text{Market Multiple}
\text{Equity Value} = \text{Enterprise Value} + \text{Cash} - \text{Funded Debt}
The Recasting (Add-Back) Process
To arrive at true SDE or adjusted EBITDA, financial accountants "recast" the P&L by adding back:
- Owner's Salary & Perks: Above-market compensation, personal auto, cell phone, club dues.
- Non-Recurring Legal / Restructuring Fees: One-time lawsuit settlements or website overhauls.
- Discretionary Bonuses: Distributions paid to family members or owners.
- Depreciation & Amortization: Non-cash historical accounting charges.