How Many Times Profit Is a Business Worth? Revenue, Net Profit and SDE Multiples Compared

Most US small businesses sell for 2 to 3 times seller discretionary earnings, and larger companies for 4 to 7 times EBITDA. Almost nobody sells for a multiple of net profit. Broker-reported closed sales in 2026 averaged 2.7 times cash flow at a median price of about $350,000, while private equity paid 5.9 times EBITDA at $10M to $25M of enterprise value. The multiple you should use depends entirely on which profit line you are multiplying.

The question sounds simple and the answer people usually get is a single number, normally three. That number is not wrong so much as unattached. Three times what? Net profit after you paid yourself? Cash flow before you paid yourself? Profit before the truck lease? Each of those lines can differ by a factor of three in the same business, so quoting a multiple without naming the line is like quoting a speed without saying miles or kilometers.

Which profit line the multiple attaches to

There are three profit lines a buyer might use, and they map onto three different sizes of business.

That last row is the one that costs owners money. Net profit is the number on your tax return, it is the number your accountant talks about, and it is the number most owners have in their head when they ask this question. It is also the number a private buyer will never price off, because it has been reduced by your salary, your financing choices and your depreciation schedule, none of which transfer to them.

Is a business worth 3 times profit?

Three times is a reasonable rule of thumb if "profit" means seller discretionary earnings and the business is a typical owner-operated company. It is far too low if it means net profit. Across roughly 9,500 broker-reported US sales the all-industry average was about 2.5 times SDE, and the Q1 2026 average cash flow multiple was 2.7 times at a median sale price of $350,000.

Size moves that number more than industry does. The IBBA and M&A Source Market Pulse data for 2026 shows a clear ladder by purchase price: deals under $500,000 closed at a median 2.0 times SDE, deals between $500,000 and $1M at 2.8 times, and deals between $1M and $2M at 3.0 times. Above that, pricing switches to EBITDA and the ladder keeps climbing. GF Data reported 5.9 times EBITDA at $10M to $25M of enterprise value in 2025, 6.6 times at $25M to $50M, and about 10.0 times at $100M to $250M.

The same business is worth a higher multiple simply for being bigger. That is not sentiment. Larger companies carry less owner dependency, have real management teams, attract more competing buyers and can access cheaper capital.

A worked example, because the lines matter more than the multiple

Take a services business with $2,000,000 of revenue and $400,000 of seller discretionary earnings, a 20 percent SDE margin, which is close to typical for a service business. The owner works in it full time and a competent manager would cost $130,000 a year. The company carries $60,000 of interest and $45,000 of depreciation.

The first three methods are independent of each other and land within 7 percent: about $1.2M. That convergence is what a defensible valuation looks like. The fourth method, applying the same familiar "three times" to net profit, produces $391,050. It understates the business by a factor of 3.07.

Follow the arithmetic down the page and you can see where the money went. SDE of $400,000 less the $130,000 manager salary gives $270,000 of adjusted EBITDA, a 13.5 percent margin. Take off $45,000 of depreciation and $60,000 of interest and you have $165,000 of pre-tax profit. After tax at 21 percent, net profit is $130,350, a 6.5 percent net margin. Nothing has been hidden. Each line simply subtracts a cost the buyer will not inherit, and by the bottom, two thirds of the earnings a buyer is actually purchasing have been subtracted away.

How many times revenue is a business worth?

Privately held US small businesses sold at an average of about 0.64 times annual revenue, ranging from roughly 0.42 times for food and restaurants to 1.18 times for financial services. Public companies averaged 3.97 times revenue in January 2026, which is a different universe and not a benchmark for a private business.

A revenue multiple is only a profit margin in disguise. The identity is exact: revenue multiple equals earnings multiple times profit margin. In the example above, 3.0 times SDE at a 20 percent SDE margin is 0.60 times revenue by definition. If that same business ran a 30 percent margin, the identical 3.0 multiple would produce 0.90 times revenue and a $1.8M price on unchanged sales. This is why margin is the strongest lever an owner controls, and why it is worth checking your own against the profit margin by industry benchmarks before you accept any multiple as fair.

How many years profit is a business worth?

Read the multiple as a payback period and it becomes intuitive. A business bought at 3 times SDE returns the purchase price in three years of earnings, assuming earnings hold. That framing also explains why buyers resist high multiples on small businesses: at 6 times SDE, an owner-operator waits six years to recover the money while personally running the company, which competes badly against simply taking a job and investing the cash.

It also explains the ceiling that debt puts on Main Street prices. SBA 7(a) loans amortize goodwill over 10 years, and at 2026 rates near 10.5 percent with a 10 percent equity injection, most lenders want debt service coverage of at least 1.25 times. Run that test on the example: a $1,200,000 price funded with a $1,080,000 loan costs about $174,900 a year to service, against $270,000 of cash flow after paying a manager. That is 1.54 times coverage, comfortably financeable. Push the price to 5 times SDE and the same test fails. In practice, SBA coverage caps most financed small business deals somewhere around 3.5 to 4.5 times SDE regardless of what the seller wants.

What actually moves your multiple within the range

Two businesses in the same industry with the same earnings routinely trade a full turn apart. The difference is risk, and buyers price it consistently:

• Owner dependency. If revenue follows you out the door, the multiple falls by one to two turns. This is the single largest discount on Main Street.
• Customer concentration. One client above 20 percent of revenue reliably costs value, and above 40 percent it can make a business unfinanceable.
• Recurring revenue. Contracted or subscription revenue moves the multiple up, because it lowers the buyer's forecast risk.
• Clean books. Earnings you can substantiate get credited. Add-backs you cannot document get removed in diligence, and every dollar removed costs you the full multiple.
• Regulatory exposure. In licensed and regulated sectors a buyer discounts for compliance risk they cannot see. Being able to show that your obligations and controls are tracked and evidenced rather than remembered shortens diligence and protects the price.
• Growth trend. Three years of rising earnings supports the top of the range. A flat or declining trend puts you at the bottom of it whatever the sector average says.

How many times gross profit is a business worth?

Gross profit is not a standard valuation base and there is no reliable multiple for it. Some professional services firms are quoted on a share of gross fees, for example law practices at roughly 0.5 to 1.5 times gross fees, but these are rules of thumb specific to a trade, not a general method. If you want a defensible number, convert to SDE or adjusted EBITDA first.

Getting to a real number

The honest answer to how many times profit a business is worth is that the multiple is the easy part. Establishing which profit line to multiply, normalizing it so it survives diligence, and adjusting for the risk factors above is where the value is determined. A sector average applied to an unnormalized number is guesswork with a decimal point on it.

Start with the earnings line rather than the multiple. Our guide to calculating SDE covers the normalization, the SDE multiples by industry table gives the sector benchmark from closed sales, and the EBITDA multiples by industry page takes over above roughly $1M of earnings. If you want the arithmetic run for you, the business valuation calculator applies all three methods to the same figures and returns the range, which is more useful than any single multiple.