A valuation multiple is shorthand for risk. When a buyer pays 3× your Seller's Discretionary Earnings, they're saying it will take three years of current cash flow to recover their investment — and they're betting the business will still be producing that cash flow in year four and beyond.
Industry sets the baseline. Recurring-revenue software businesses trade at 5–8× because their cash flows are predictable. Single-location restaurants trade at 1.5–2.5× because they aren't. You can't change your industry, but you can change where you sit within its range.
Five factors move you up the band: customer concentration (no client over 15% of revenue), recurring or contracted revenue, a management team in place, documented systems, and clean books reviewed or audited by a credentialed CPA. Each one independently shifts the multiple; together they can double it.
EBITDA versus SDE matters too. Main-Street deals (under ~$2M in earnings) trade on SDE, which adds back the owner's salary and perks. Lower-middle-market deals trade on EBITDA, which assumes a hired GM. Crossing that threshold often means a higher headline multiple but a lower base — model both before you decide which way to position.
The directional calculator on our valuation page gives you a starting point. A formal written valuation pressure-tests it against asset, income, and actual SBA-closed comparable transactions in your industry.