What Is My Small Business Worth? Valuation Basics for $1M to $3M Revenue Companies

Every owner we meet asks the same question, usually in the first ten minutes: what is my business worth? The honest answer is a range, and the range depends less on a formula than on how much risk a buyer has to take to keep your earnings coming in after you leave.

This guide covers how buyers actually value companies in the $1 million to $3 million revenue range, the size of business Twelve31 focuses on, and what you can do in the next year to move your number.

Step 1: Pick the right earnings number

Small businesses are almost always valued as a multiple of earnings. Which earnings depends on size.

Seller's discretionary earnings (SDE) is pre-tax profit plus the owner's salary and benefits, plus interest, depreciation and amortization, plus one-time or personal expenses run through the business. SDE answers the question, "How much cash does this business produce for one owner-operator?" It is the common yardstick for businesses where the owner works in the business full time.

EBITDA (earnings before interest, taxes, depreciation and amortization) assumes the business pays a market salary to whoever runs it. It is the yardstick once a business has a manager in place, or when the buyer is a firm rather than an individual who will work in the business.

The difference matters. If your SDE is $450,000 and a general manager in Omaha would cost $110,000 with benefits, your adjusted EBITDA is about $340,000. Applying an EBITDA multiple to an SDE number is one of the most common reasons an owner's expectations and a buyer's offer are far apart.

Step 2: Make your add-backs hold up

Add-backs are expenses that will not continue under a new owner: your personal vehicle, a family member on payroll who does not work in the business, a one-time lawsuit or a roof replacement. They are legitimate. They are also the first place a buyer, a lender and a quality of earnings firm will look.

A good add-back has three things:

1. A document. An invoice, a payroll record, a tax return line.
2. A reason it will not recur. "We replaced the roof in 2024" is clear. "Marketing we might not need" is not.
3. No hidden cost behind it. If your spouse does the books for free, the buyer has to pay someone to do them. That is a negative adjustment, not an add-back.

Under the SBA rules that took effect October 1, 2026, lenders size acquisition loans on historical, documented earnings. Unsupported add-backs now cost sellers directly. See our summary of the SBA 7(a) changes.

Step 3: Understand what moves the multiple

Two businesses with the same earnings can sell for very different prices. Buyers pay more when the earnings are more likely to continue. These are the factors we see move value most in Main Street and lower middle market deals:

• Owner dependence. If customers call you, if only you can quote a job, or if the key supplier relationship is personal, the buyer is paying for your presence and will discount for your absence. This is usually the single biggest lever an owner controls.
• Customer concentration. One customer above roughly 15% to 20% of revenue gets a buyer's attention. Above a third, expect structure (an earnout or seller note) tied to keeping that customer.
• Recurring or repeat revenue. Contracts, memberships, scheduled maintenance, standing wholesale orders and loyal repeat customers are worth more than one-time project revenue.
• Trend. Three years of steady or rising earnings beat one great year. Buyers and lenders look at the trailing twelve months and the direction.
• Clean records. Monthly financial statements that tie to the bank and the tax return shorten diligence and reduce the discount a buyer applies for uncertainty.
• People. A second-in-command who can run the day-to-day, and a team that will stay, makes a business easier to finance and easier to own.
• Facility and equipment. Deferred maintenance shows up as a price reduction. So does a lease that is about to expire with no renewal option.

Step 4: Know what "the price" includes

Owners often compare headline numbers. Buyers and their lenders think about the whole package:

• Working capital. Most deals assume the business is delivered with a normal level of receivables, inventory and payables, called the working capital peg. If you collect all your receivables and leave the shelves empty, the price goes down at closing.
• Asset sale or stock sale. Most small business acquisitions are asset purchases. The allocation of price among equipment, inventory and goodwill has real tax consequences for both sides. Bring your CPA in early.
• Structure. Cash at closing, a seller note, an earnout, a consulting agreement or rollover equity can all be part of the price. A higher number with more contingent pieces can be worth less than a lower all-cash number. Our guide to seller notes, earnouts and rollover equity covers the trade-offs.
• Real estate. If you own the building, decide whether you are selling it or leasing it to the buyer. Lease terms affect the buyer's cash flow and therefore the business value.

Step 5: Do the 30-minute self-check

Before you talk to anyone, answer these honestly:

1. What were revenue and pre-tax profit for each of the last three years, and the trailing twelve months?
2. What did you pay yourself, all in, including benefits and perks?
3. Which expenses will not continue under a new owner, and can you document each one?
4. What share of revenue comes from your top one, five and ten customers?
5. If you took four weeks off with no phone, what would break?
6. Who on your team could run the business day to day, and would they stay through a sale?
7. Are your monthly books closed, and do they tie to your bank deposits?
8. When does your lease expire, and what major equipment will need replacing in the next three years?

If more than two of those answers make you uneasy, you have found your value plan for the next twelve months. Our 12-month readiness plan turns them into a calendar.

Why rules of thumb mislead

Industry rules of thumb ("dental practices sell for X% of collections," "trades sell for Y times SDE") are a starting point at best. They ignore the factors above, and they are often quoted from deals of a very different size or in a different market. In Nebraska and western Iowa, the buyer pool for a given business may be a few local operators, a handful of searchers and one or two sponsors. That buyer set, and how competitive it is, shapes the price as much as any national average.

The better approach is to start with your documented earnings, apply a range that reflects your specific risks, and then test that range against what a lender will actually finance.

How Twelve31 can help

Twelve31 partners with established businesses in the Omaha region, generally with about $1 million to $3 million in revenue and a history of profit, at a point of transition. We structure each purchase around the owner, and in many cases that includes a share of the upside. See what we look for.

If you are thinking about selling, tell us about your business. It takes about ten minutes, it is confidential, and there is no obligation. If your business is outside what we buy, Twelve31 Advisors can help you understand your options.

---

General information only, not tax, legal or valuation advice. Figures in examples are illustrative.