🎯 In 30 seconds: Small businesses are usually priced as a multiple of seller’s discretionary earnings (SDE), the cash an owner-operator takes home. The multiple is rough and varies widely. The price only matters once due diligence proves the earnings are real, the lease and customers will stay, and the cash flow can pay the loan and you.
SDE: the number deals are built on
SDE starts with net profit on the tax return and adds back the owner’s own pay and perks, plus non-cash and one-time items, to show what one full-time owner could take out. Common add-backs: owner’s salary, the owner’s health insurance, depreciation and amortization, interest, and genuinely one-time costs.
Worked example (illustrative):
| Net profit (Schedule C) | $90,000 |
| + Depreciation | $8,000 |
| + Loan interest | $4,000 |
| + Owner’s car and phone run through the business | $6,000 |
| + One-time legal fee | $2,000 |
| = SDE | $110,000 |
| At 2.5 × SDE | $275,000 asking price |
Every add-back needs proof. “He paid his nephew $30,000 but the nephew didn’t really work” is a story, not an add-back.
Multiples: rough and variable
Marketplace data gives a sense of scale: BizBuySell reported an average cash-flow multiple of 2.7 for businesses sold in the second quarter of 2026. Individual deals spread far from any average. Multiples tend to rise with recurring revenue, a long lease, many small customers and a business that runs without the owner, and fall with customer concentration, a short lease, old equipment or an owner who is the business. The SBA lists several valuation methods (income, cash flow, tangible assets), and a lender’s question is simpler: can the cash flow repay the loan with room to spare?
Due diligence checklist
- Three years of business tax returns, matched to the P&L the seller shows you.
- Bank statements for the same period. Deposits should support reported revenue.
- Lease: years left, renewal options, assignment terms, rent increases. Talk to the landlord early.
- Customer concentration: if one customer is more than a small share of revenue, ask what happens if they leave.
- Payroll and key employees: who knows how things work, and will they stay?
- Equipment: age, condition, liens (a UCC search with the state shows them).
- Licenses and permits: which transfer and which you must apply for fresh.
- Liabilities: unpaid taxes, lawsuits, warranties, gift cards owed.
- Watch the business operate for a few days, at different times.
Paying for it: SBA loans and seller financing
SBA 7(a) loans can finance a complete change of ownership. Under SBA rules in effect since June 2025 (SOP 50 10 8), lenders generally require the buyer to put in equity of at least 10% of the total project cost. A seller note can count toward that only if it is on full standby (no payments) for the life of the SBA loan and covers no more than half the required equity. These rules change; confirm with your lender.
On the $275,000 example: about $27,500 of buyer equity, plus closing costs and working capital, with the rest from the SBA loan and possibly a seller note. Seller financing also signals the seller believes the business will keep paying.
Asset purchases (buying the equipment, name and customer list, not the company) are common for small deals because old liabilities stay with the seller. Buyer and seller each report how the price is split among asset classes on IRS Form 8594, so agree on that split in the contract.
The transition period
- Write the training period into the contract: weeks, hours, and what the seller will teach.
- Introduce yourself to top customers, suppliers and the landlord with the seller, not after they leave.
- Change nothing big in the first 90 days. Learn why things are done the way they are.
- Transfer or re-apply for licenses, accounts, insurance and the EIN-based registrations (you’ll usually need your own EIN).
- A non-compete from the seller is common in business sales; state law governs it, so have your lawyer draft it.
The laundromat game plan in Main Street Business walks one purchase end to end.