The valuation method
How we calculate your Worth Score
Small businesses are almost always valued the same way: SDE × an industry multiple. The two things we calculate are the SDE (how much money the business really makes) and the multiple (how much a buyer will pay for each dollar of that money).
What SDE is, in one minute
SDE stands for Seller's Discretionary Earnings. It is the cash the business generates that's available to a single working owner. Starting from net profit, we add back five things that a new owner would control on their own:
- Owner compensation (salary you pay yourself)
- Owner perks (health insurance, vehicle, phone — anything personal that runs through the business)
- Depreciation (a paper expense, not a real cash cost)
- Interest on existing debt (a new owner might finance differently)
- One-time expenses (last year's legal bill, a renovation, anything that won't repeat)
The result is the cash a new owner would pocket in year one, before paying themselves. It's the number buyers, brokers, and acquisition loans all use — because it lets you compare your business to another one across a different owner pay structure.
What an industry multiple is
A multiple is a number — usually between 1.5 and 7 — that tells you how many years of SDE a buyer will pay up front. If your industry trades at 3.0x SDE, and your SDE is $250,000, a fair transaction value is roughly $750,000. Multiples vary meaningfully by industry: a dental practice might trade at 5.5x while a full-service restaurant trades at 2.0x, because the businesses have very different risk and growth profiles.
Every industry in our database has a low, mid, and high multiple. The low is a conservative buyer's offer. The high is what a strong performer in that industry commands. The mid is the most likely outcome for a typical owner — that's the number we lead with on your results page.
How we adjust the multiple for your business
The base industry multiple is a starting point. We then adjust it up or down for the risk factors buyers actually price in during diligence. Each adjustment moves the mid multiple by a calibrated amount — big ones ±0.5x, small ones ±0.1x:
- Owner involvement
- Weekly hours the owner works. Under 20 hours lifts the multiple; over 60 hours discounts it.
- Customer concentration
- Share of revenue from the top three customers. Heavy concentration compresses the multiple.
- Recurring revenue
- Share of revenue from contracts and subscriptions. Predictable income adds value; lumpy income subtracts.
- Years in business
- A longer track record reduces perceived risk for buyers doing diligence.
- Revenue trend
- Growing, flat, or declining. Magnitude matters — a business growing over 25%/year scores very differently from one growing under 10%.
- Accountant-prepared books
- Reviewed financials lift the multiple; informal or reconstructed books discount it.
- Documented procedures
- Written operating procedures make the business transferable on day one.
The low and high values you see stay the same width apart — we shift the range, we don't narrow or widen it. That keeps the conservative and optimistic estimates meaningful as honest ranges rather than a moving target.
The AI review layer
After the math runs, a senior-analyst AI reviews the inputs and the computed range. It may apply a further nudge of up to ±0.5x to the mid multiple when it sees something the formula didn't capture — a specific industry dynamic, an unusual combination of inputs, or a named factor worth flagging. The AI also writes the plain-English explanations, the buyer-perspective notes, and the prioritized recommendations you see in the full report.
Your Worth Score
The 8 dimensions
Your Worth Score is a weighted 0–100 composite of 8 factors that buyers evaluate during due diligence. Each dimension is scored 0–100, then weighted into your overall number. Financial Performance weighs most heavily because it's what buyers are literally paying for; the other seven are the risk and quality factors that shift how much they'll pay.
- Financial Performance
- The size and health of your cash flow. Buyers weight this heaviest because it's what they're actually paying for — SDE, profit margins, and revenue scale versus industry norms.
- Revenue Quality
- How predictable your revenue is. Recurring contracts, subscriptions, and service agreements score high. Transaction-by-transaction revenue that resets to zero every month scores lower.
- Owner Dependency
- How much the business needs you to function. An owner working 60-hour weeks and doing the selling is a key-person risk — buyers discount for the 6–12 months of replacement cost. A business that runs under 20 hours of owner time is highly transferable.
- Customer Diversification
- Your top-customer concentration. If one customer is 30% of your revenue, they're also 30% of your risk. Buyers price in the chance that customer leaves after the sale.
- Operations & Systems
- Whether daily operations are documented and transferable. Written procedures, a capable team, and software systems that outlive the owner all move this score up.
- Market Position
- How attractive your industry and niche are to buyers. A growing industry with active buyer demand and a defensible local moat scores high. A commoditized or declining segment scores lower.
- Growth Trajectory
- Revenue trend over the last 1–3 years. Buyers pay for the future, not the past — sustained growth commands a premium, flat revenue is neutral, and declining revenue gets discounted aggressively.
- Books & Documentation
- The quality of your financial records. Accountant-prepared books with 3+ years of clean history make buyer diligence fast and confident. Reconstructed or informal books force buyers to discount for the risk that the numbers won't hold up.
Weights sum to 100%. They're calibrated against the relative impact each factor has on transaction outcomes in small-business sales — not an arbitrary split.
Your readiness band
How grades work
Your Worth Score drops into one of four grades. The grade is a shorthand for where you sit on the readiness curve and what that practically means if you tried to sell today.
You could go to market now and expect a competitive process with multiple qualified buyers. Your Exit Package (financial summary, owner transition plan, diligence kit) unlocks automatically at this score.
Sellable today but not at peak value. A focused 6–12 months on the two or three weakest dimensions typically pushes you into Exit Ready and meaningfully lifts the multiple buyers will pay.
You could sell but should expect concessions — an earnout, a longer transition, or a discount to the range. A 12–24 month plan with the right recommendations will change the conversation buyers have with you.
A sale today would be a distressed or asset-level deal. The report identifies the highest-leverage places to start. Most owners at this stage can move up one grade within 12–18 months of focused work.
Where the numbers come from
Our data sources
Industry multiples come from small-business transaction data — a blend of published brokerage and M&A databases, trade publications, and credentialed valuation research on actual sold comparables. We maintain a multiple range (low, mid, high) for every NAICS code in our industry database, refreshed as new comparable transactions become available.
Every WorthCheckup valuation also feeds an internal, anonymized benchmark database. That benchmark dataset gets better over time — calibrated against real outcomes — and is what makes the estimate more accurate for the next owner in your industry. We never sell or share identified business data; aggregated benchmarks are the only output.
Honest scope
What this is not
WorthCheckup provides a directional estimate — not a certified appraisal.
This means the report is built for planning, decision-making, and advisor conversations. It is not prepared to the Uniform Standards of Professional Appraisal Practice (USPAP), and it is not suitable as a standalone document for tax filings, estate settlements, divorce proceedings, SBA loans, or litigation.
If you need a valuation that will hold up in those contexts, engage a credentialed valuation professional — someone with CVA (Certified Valuation Analyst), ASA (Accredited Senior Appraiser), or ABV (Accredited in Business Valuation) after their name. A formal engagement typically runs $5,000–$15,000 and takes 4–8 weeks. Many of our users bring their WorthCheckup Report to that engagement as a starting point and a sanity check.
Actual sale outcomes depend on deal structure, tax treatment, buyer financing, market conditions at the time of sale, and the results of buyer due diligence — none of which are reflected in the estimate. The valuation range shown is transaction value, not the seller's net proceeds; outstanding debt and transaction costs come out of the seller's cash at closing.
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