Know what you are
getting into.

SDE starts with net profit, then adds back the owner's salary, owner benefits, one-time expenses, and non-cash charges like depreciation. The result is a normalized picture of what the business actually earns for its owner.

Most small businesses sell for a multiple of SDE — typically 2x to 4x, depending on industry, growth trajectory, customer concentration, and how dependent the business is on the current owner. A business with $300K SDE might sell for $750K to $1.2M.

Understanding your SDE — and how buyers will interpret it — is the foundation of any realistic valuation conversation. Ed walks every seller through this calculation before discussing price.

SDE Multiple: Most common for small businesses under $2M in value. A multiple (typically 2x–4x) is applied to the Seller's Discretionary Earnings. The multiple reflects risk, growth, and how transferable the business is.

EBITDA Multiple: Used for larger businesses, typically $2M+ in value. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a more institutional measure of cash flow. Multiples range from 3x to 6x or higher depending on the industry.

Asset-Based Valuation: Used when a business's value is primarily in its tangible assets — equipment, inventory, real estate. Common in manufacturing, construction, and asset-heavy industries.

Revenue Multiple: Occasionally used in high-growth or tech-adjacent businesses where earnings are low but revenue is strong. Less common in traditional small business sales.

Months 1–2: Preparation. Before anything goes to market, Ed works with you to organize financials, prepare a Confidential Business Review (CBR), and establish a defensible asking price. Sellers who skip this step often regret it.

Months 2–5: Confidential Marketing. Your business is marketed to qualified buyers through blind listings, broker networks, and targeted outreach — without revealing your identity. Interested buyers sign NDAs before receiving details.

Months 3–7: Buyer Meetings and LOI. Qualified buyers meet with you (often off-site, confidentially). When a serious buyer emerges, they submit a Letter of Intent (LOI) outlining the proposed terms.

Months 5–9: Due Diligence. The buyer's team reviews your financials, contracts, leases, and operations in detail. This is where deals succeed or fall apart. Good preparation in month one pays off here.

Months 7–12: Closing and Transition. Attorneys finalize the purchase agreement. Funds transfer. You begin the transition period — typically 30 to 90 days of working alongside the new owner.

1. Unrealistic pricing. The most common deal-killer. A business priced above what the financials support will sit on the market, attract skeptical buyers, and eventually sell for less than it would have at the right price from the start.

2. Poor financial records. Buyers and their lenders need clean, consistent financials — ideally three years of tax returns. Businesses with messy books, unexplained fluctuations, or heavy cash transactions are harder to finance and harder to sell.

3. Customer concentration. If one or two customers represent more than 30% of revenue, buyers see significant risk. Diversifying your customer base before a sale — even modestly — can meaningfully increase your multiple.

4. Owner dependency. If the business cannot function without you, buyers will either walk away or demand a long, expensive transition period. Documenting processes and empowering key employees makes a business far more transferable.

5. Confidentiality breaches. When employees, customers, or competitors find out a business is for sale before the deal closes, it can destabilize the business and derail the transaction. Working with an experienced broker who manages confidentiality carefully is essential.

Know your budget before you look. Your acquisition budget includes the purchase price, working capital, transaction costs (legal, accounting, broker fees), and a reserve for the unexpected. Most buyers underestimate total capital required.

Understand how business financing works. Most small business acquisitions involve a combination of buyer equity (typically 10–30%), an SBA loan, and sometimes seller financing. SBA 7(a) loans are the most common vehicle for business acquisitions under $5M.

Look for businesses that match your skills, not just your interests. Passion for an industry is not enough. The most successful buyers bring transferable management skills — people leadership, financial literacy, customer relationships — that apply regardless of the specific business.

Due diligence is not optional. Reviewing financials, verifying customer relationships, understanding lease terms, and assessing key employee risk are not bureaucratic steps — they are how you avoid buying a business that is not what it appears to be.

The transition period matters. Most purchase agreements include a seller transition period of 30 to 90 days. Use it. The seller's knowledge of customers, suppliers, and operations is one of the most valuable things you are buying.

Start with tax returns, not just QuickBooks. Tax returns are harder to manipulate and are what lenders will use to underwrite a loan. If a seller only provides internal reports, ask why.

Understand add-backs. Sellers will often 'add back' expenses to show a higher SDE — owner salary, personal vehicle, family members on payroll, one-time expenses. Some add-backs are legitimate; others are aggressive. Ed helps buyers evaluate each one critically.

Look for trends, not just averages. A business with $400K SDE last year but declining revenue for three years tells a different story than one with consistent or growing earnings. Always ask for three years of financials.

Understand working capital. When you buy a business, you typically need working capital to operate it from day one — inventory, receivables, payroll. Make sure your acquisition budget accounts for this, and clarify what working capital is included in the purchase price.