THE FORMULA
Value is earnings times confidence
SDE
SELLER’S DISCRETIONARY EARNINGS
What the business actually generates for an owner.
Multiple
THE MARKET’S PRICE
How many times SDE a buyer will pay. The part most owners never manage.
Value
ENTERPRISE VALUE
Move the multiple, and the same earnings sell for more.
Earnings set the base. The multiple sets the price.
WHY THE MULTIPLE MATTERS
One business, two prices
$500,000 SDE at two multiples
THE GAP
$1,000,000
Same earnings. Same owner. Same hours.
The only difference is how much risk a buyer sees and how easily the business transfers to them. Both can be improved before you sell.
WHAT SETS YOUR MULTIPLE
A buyer asks two questions
Risk
Will the earnings still be there next year?
1
Revenue Quality
2
Customer Concentration
3
Financial Clarity
4
Growth Trajectory
5
Competitive Position
Transferability
Will the business still work when you walk out?
6
Owner Independence
7
Management Depth
8
Documented Systems
9
Transition Readiness
THE EVO SCORECARD
Score each Value Maker 0–10
1
Revenue Quality
___/10How much revenue is recurring or contracted?
2
Customer Concentration
___/10Is any customer over 15–20% of revenue?
3
Financial Clarity
___/10Are the books clean and add-backs documented?
4
Growth Trajectory
___/10Are revenue and margin rising over three years?
5
Competitive Position
___/10Do you own a niche, brand or pricing power?
6
Owner Independence
___/10Can it run 90 days without your decisions?
7
Management Depth
___/10Is there leadership below you with real authority?
8
Documented Systems
___/10Are core processes written down?
9
Transition Readiness
___/10Is there a handoff plan if a buyer closed next month?
Risk
Transferability
TOTAL SCORE
_____ / 90
FROM SCORE TO MULTIPLE
Your score sets your multiple
| Total score | Tier | Likely multiple of SDE | What it means |
|---|---|---|---|
| 72–90 | Strong | 4.1x – 6.0x+ | Premium buyer pool, minimal price discount |
| 54–71 | Adequate | 3.0x – 4.0x | Marketable, but several factors get negotiated down |
| 36–53 | Weak | 2.0x – 2.9x | Sellable, at a discount and a longer process |
| 0–35 | At risk | 1.0x – 1.9x | Significant rebuilding before a credible sale |
Every point you add moves you toward the next tier, and a higher multiple on the same earnings.
Ranges are typical for owner-operated businesses. Your industry’s baseline shifts the whole band up or down; larger businesses are usually priced on EBITDA rather than SDE.