How do you value a small service business?

Most small service businesses are valued as a multiple of Seller's Discretionary Earnings (SDE). Typical multiples range from 2x to 5x SDE depending on industry, recurring revenue, customer concentration, and management depth.

Seller's Discretionary Earnings (SDE) equals net income plus owner's salary, owner perks, interest, taxes, depreciation, amortization, and one-time non-recurring expenses. It represents the total economic benefit to a single owner-operator.

What multiple does an HVAC business sell for?

HVAC businesses typically trade at 2.5x to 4.5x SDE. Larger shops above $1M EBITDA with commercial maintenance contracts can clear 5x to 7x from private-equity buyers.

Business Valuation Calculator

Estimate what a service business is worth using Seller's Discretionary Earnings (SDE) and an industry-calibrated multiple. Adjust for recurring revenue, customer concentration, management depth, and growth to land in the right range.

Financials (last 12 months)

Revenue

Net income (per tax return)

Owner's salary / draw

Owner perks (auto, insurance, travel)

Interest expense

Depreciation & amortization

One-time / non-recurring expenses

Multiple drivers

Industry

Recurring revenue30–70%

Customer concentration20–40%

Management depthLead tech

Growth (3-yr CAGR)Flat

Estimated valuation

Range based on HVAC comps and your business profile.

Midpoint estimate

$1,251,250

at 3.25x SDE

SDE: $385,000
SDE margin: 19.3%
Low (2.5x): $962,500
High (4.5x): $1,732,500

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How to value a service business

Small service businesses (under ~$1M EBITDA) are almost always valued as a multiple of Seller's Discretionary Earnings (SDE), not revenue. SDE captures the true economic benefit a single owner-operator takes home — including their salary, perks, and add-backs for non-recurring items.

What moves the multiple

• Recurring revenue (MSAs, route contracts): biggest single lever
• Customer concentration: any single client >25% drops the multiple
• Management depth: owner-dependent shops trade at the low end
• Growth trajectory: 20%+ CAGR can push above the comp range
• Licensing risk: trades where the license walks with the owner trade lower

SDE vs EBITDA — which to use

Use SDE for owner-operated businesses where a single buyer will replace the owner. Switch to EBITDA (with a market-rate manager salary deducted) once the business clears ~$1M in earnings and would be bought by a private-equity sponsor or strategic. EBITDA multiples are typically 1–1.5 turns higher than SDE multiples on the same business.