What SDE actually is (and what brokers fudge)
Seller's Discretionary Earnings = net income + one owner's salary + interest + depreciation + amortization + discretionary add-backs (owner's car, family payroll, one-time legal). Brokers add back aggressively to inflate the multiple base. Your job in due diligence: verify every add-back with bank statements and tax returns.
- • Demand 3 years of tax returns + P&Ls + bank statements before signing LOI.
- • Customer concentration over 20% in one client = haircut the multiple by 0.5–1.0×.
- • Owner-dependence (sales personally tied to owner) = haircut by 0.5–1.0×.
- • Real recurring revenue (contracts, subscriptions) = premium of 0.5–1.5×.
How SBA 7(a) acquisition loans actually work
The SBA 7(a) program is the dominant tool for buying a Main Street business. Lender funds up to $5M, SBA guarantees 75% of the loan, you put 10–15% down, seller carries 5–10% as a 'standby' note. 10-year amortization, Prime + 2.75–4.75% (currently ~10–12%).
- • You MUST run DSCR ≥ 1.25 — non-negotiable lender requirement.
- • Personal guarantee + lien on personal real estate is required.
- • Use an SBA Preferred Lender (PLP) — closes in 60 days vs 120+ for non-PLP.
- • Real estate in the deal extends amortization to 25 yrs (lower monthly payment).
Industry multiple cheat sheet (BizBuySell + IBBA 2024)
Restaurant 1.8–2.4× SDE · Coffee shop 1.7–2.1× · Auto repair 1.9–2.5× · Cleaning 2.2–3.0× · Dental 0.7–0.9× revenue (not SDE) · Ecom 3.0–4.0× · Agency 2.8–3.5× · Laundromat 3.5–4.5× (mostly real estate / equipment) · SaaS 4.0–6.0× · Property management 3.5–5.0×.
Related guides
Long-form playbooks on the same topic, written by the RevenueLab editorial team.
How to Buy a Laundromat in 2026: The Honest Operator Guide (DD, Water Bills, Scale)
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Read the guideHow to Buy a Car Wash in 2026: Express Tunnel, In-Bay, Self-Serve (with the Membership Math)
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Read the guideFAQ
What's a fair multiple to pay for a small business?
BizBuySell Q4 2024 median across all small businesses is ~2.4× SDE. Multiples vary 1.5–6× by industry, growth, recurring revenue, and customer concentration. Use the cheat sheet above as a starting band — then adjust for the specific risks.
How much money do I need down to buy a business?
SBA 7(a): minimum 10% (often 15% to get the deal closed). Conventional: 25–35%. Seller financing typically bridges 5–10% of your down. So for a $1M acquisition you usually need $100K–$150K of your own cash plus working capital reserve.
What is DSCR and why does it matter?
Debt Service Coverage Ratio = SDE ÷ annual debt service. SBA lenders require ≥ 1.25 (some require 1.35). If the deal you're modeling shows 1.10, the bank will say no — you need to renegotiate price down or put more cash in.
Should I include real estate in the acquisition?
If the seller owns the building and is willing to sell it together, often yes — SBA 504 or 7(a) lets you finance both at 90% LTV with 25-year amortization on the real estate portion. It locks in rent (you pay yourself) and creates a second appreciating asset.
How long until I get my equity back?
Median Main Street acquisition: 4–6 years to recover your down payment from free cash flow. Faster on lower-priced, higher-multiple businesses (services, ecom). The Years of SDE to Recover output above is the closest 'simple payback' proxy.
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Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
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