What Is My Business Worth? A Guide for Small and Medium-Sized Enterprises

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The Most Important Question Before Selling

If you're thinking about selling your business, sooner or later you'll face the crucial question: what is my company actually worth? The answer is less straightforward than many owners expect. A business's value doesn't depend solely on revenue and profit — it also hinges on how a potential buyer assesses the company's future viability.

In this article, we explain the most common valuation methods for small and medium-sized enterprises in Germany, Austria, and Switzerland. We show what matters most for owner-operated businesses and which mistakes you should avoid.

What Valuation Methods Exist?

In practice, there are several recognised approaches to business valuation. For large companies and publicly listed corporations, methods such as the Discounted Cash Flow (DCF) approach or the capitalised earnings method (Ertragswertverfahren) under the IDW S1 standard are commonly used. These methods are theoretically robust, but for SMEs they are often too complex and too expensive — a formal valuation report can easily cost several thousand euros.

For small and medium-sized businesses valued between €100,000 and €5,000,000, a different approach has become the standard in practice: the multiples method. It is simpler, faster, and — when applied correctly — sufficiently accurate for the vast majority of SME transactions.

The Multiples Method: How It Works

The basic idea is simple: take a relevant earnings metric of the business and multiply it by an industry-typical factor (the "multiple"). The result is an estimate of the business's value.

The formula is:

Enterprise Value = Earnings Metric × Multiple

The key question is: which earnings metric is the right one?

<H2>EBIT, EBITDA, or SDEBIT — What's the Difference?</H2>

Three metrics come up frequently in business valuations:

EBIT (Earnings Before Interest and Taxes) is the operating result before interest and tax. EBIT shows how profitable the core business is, regardless of how it is financed. The DUB Deutsche Unternehmerbörse, for example, publishes quarterly EBIT multiples for various industries. The current average for construction and trades is approximately 7.0x, for software 6.4x, and for retail and wholesale 5.1x.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) goes a step further by also excluding depreciation. This is particularly relevant for businesses with significant fixed assets (e.g. manufacturing, trades with vehicle fleets), where high depreciation charges push down the EBIT even though the business is financially healthy.

SDEBIT (Seller's Discretionary Earnings Before Interest and Taxes) — also known as SDE (Seller's Discretionary Earnings) — is the most important metric for owner-operated businesses. And this is where it becomes especially relevant for SME owners.

Why SDEBIT Is Crucial for SMEs

In small and medium-sized businesses, the owner often serves simultaneously as managing director, sales lead, and sometimes even bookkeeper. The owner's salary, private use of the company car, health insurance through the business, or one-off expenses (e.g. a legal dispute, a major repair) — all of these affect the operating result but have nothing to do with the business's actual earning power.

SDEBIT adjusts the result for exactly these items:

SDEBIT = EBIT + Owner's Salary + Other Adjustments

Typical adjustments include: the managing owner's salary, personal expenses run through the business, one-off or extraordinary costs (legal disputes, relocation, exceptional write-downs), below-market rent (e.g. if the owner owns the premises), and salaries paid to family members who are not or only partially active in the business.

Only after these adjustments do you get a realistic picture of how much earnings a buyer could actually generate from the business. SDEBIT is therefore the preferred basis for valuing owner-operated businesses — internationally and increasingly in the DACH region as well.

Where Do the Multiples Come From?

The level of the multiple depends on several factors: industry, company size, country, and current market conditions. An important point to note: multiples that apply to publicly listed corporations are not applicable to SMEs. Large companies are valued at significantly higher multiples because they are more diversified, less owner-dependent, and more liquid.

For SMEs specifically, there are now good data sources in the German-speaking region. The KMUrechner from the Unternehmenswerkstatt Deutschland, for example, offers a free initial estimate based on the capitalised earnings method. The German Bürgschaftsbanken (guarantee banks) also provide a free business value calculator specifically designed for succession situations.

These sources provide useful initial reference points. However, most of them work with EBIT multiples and do not account for the SDE adjustments that are so important for SMEs.

What Factors Influence the Multiple?

Two businesses in the same industry with the same SDEBIT can still be valued very differently. That's because the multiple is adjusted up or down by a range of risk and quality factors:

Factors that increase value: a stable or growing market environment, a high proportion of recurring revenue (e.g. maintenance contracts, subscriptions), low dependence on the owner (the business runs even without the boss), a broad customer base without concentration risk, and an experienced, loyal team.

Factors that decrease value: high owner dependence (the boss is the sole sales channel), reliance on a small number of large customers, a shrinking market or outdated business model, lack of documented processes and know-how, and dependence on individual suppliers.

Every Valuation Is Individual

As useful as multiples are for orientation, they only ever provide one data point — not the whole picture. Every business is unique, and a good valuation takes into account the individual circumstances of the company.

This is especially true for smaller businesses. The smaller the company, the more individual factors can influence its value — factors that don't show up in a standardised industry table. A trades business with a master craftsman who has maintained personal customer relationships for 30 years has different qualities than an equally sized company with a young team and digitalised processes — even if both show similar figures on paper.

On top of that, many owner-operated businesses cannot be scaled at will. The owner often works hands-on in daily operations, and capacity is tied to people rather than systems. This is not a flaw — it is the reality of the vast majority of successful small businesses in Germany. But it does mean that generic multiples should be treated with caution, making an individual assessment all the more important.

The good news: these very individual strengths of your business — long-standing customer relationships, a well-established team, a strong regional market position — are often more valuable to buyers than any single metric can express. A thorough valuation ensures that these qualities become visible and are reflected in the price.

A Practical Example

An HVAC business (heating, ventilation, plumbing) in southern Germany with 8 employees reports the following figures (three-year average):

Revenue: €1,200,000, EBIT: €80,000, Owner's salary: €95,000, Other adjustments: €15,000.

This gives an SDEBIT of €190,000. If EBIT alone (€80,000) had been used as the basis and multiplied by an EBIT multiple, the result would be a significantly lower figure that does not accurately reflect the true earning power of this owner-operated business.

Enterprise Value Is Not the Same as the Purchase Price

An important note: the calculated enterprise value is a starting point for negotiations, not the final purchase price. Interest-bearing liabilities are typically deducted from the enterprise value, while non-operating cash reserves can be added. Factors such as seller financing, earnout agreements, or a transition period with the previous owner can also influence the actual purchase price.

This is precisely why it pays to gain clarity about your business's value early on. Those who know their numbers and understand what buyers look for negotiate from a position of strength — and can make targeted improvements to the factors that increase their company's value.

Find Out What Your Business Is Worth — For Free

Want to know what your business is worth? Sequi's free valuation tool goes beyond generic industry tables: it calculates your business's value using the SDEBIT method — with industry-specific multiples and an individual risk analysis that takes into account factors such as owner dependence, customer structure, and growth potential. The calculation takes just a few minutes and provides you with a well-founded, tailored initial assessment.

→ Get your free valuation at sequi.market