Types of Valuation: The 7 Methods Every Business Owner Should Know in 2026

Business owners ask “what is my company worth?” and quickly discover the answer depends entirely on which valuation method you use. Different methods produce dramatically different answers: a $2M EBITDA business might be valued at $8M (4x EBITDA, cash flow approach) or $14M (7x EBITDA, M&A approach) or $5M (asset approach, liquidation). Understanding the methods and when each applies is the foundation of any informed sale decision.

This guide covers the 7 standard valuation types, when each applies, what they produce, and how the AICPA, ASA (American Society of Appraisers), and NACVA (National Association of Certified Valuators and Analysts) standards govern professional valuations. Whether you’re preparing for a sale, evaluating a buy-side opportunity, or completing an estate plan, the right method matters.

CT Acquisitions runs sell-side M&A processes for founder-owned U.S. businesses ($1M-$25M EBITDA). We use the EBITDA multiple method as our primary valuation tool, cross-checked against DCF and transaction comparables. This guide documents that practice + adjacent methods every founder should understand.

Types 1-3: The 3 Standard Valuation Approaches

The standard types of valuation recognized by AICPA SSVS-1, ASA, and NACVA professional standards are three approaches: Market, Income, and Asset.

Professional valuation standards (AICPA SSVS-1, ASA, NACVA) all recognize three standard approaches:

1. Market Approach

The market approach uses observable transactions in the market to value the subject business. Two implementations:

• Guideline Public Company Method (GPCM): Identify 3-7 publicly traded companies in the same sector. Apply their EV/EBITDA, EV/Revenue, or P/E multiples to the subject. Adjust for size, growth, and profitability. Apply a public-to-private discount (typically 20-30%).
• Guideline Transaction Method: Identify recent M&A transactions in the same sector. Apply their multiples directly. Data sources: Mergermarket, S&P Capital IQ, PitchBook, Capstone Partners industry reports, GF Data.

Best for: Established businesses with clear public/transaction comparables.

2. Income Approach

The income approach values the business at the present value of expected future cash flows. Standard implementation: discounted cash flow (DCF):

• Project free cash flows for 5-10 years (explicit forecast period).
• Calculate terminal value at end of forecast (exit multiple method OR perpetuity growth method).
• Discount all cash flows to present using WACC (weighted average cost of capital).

Best for: Stable businesses with predictable cash flows. Most methodologically defensible but very sensitive to assumptions.

3. Asset Approach

The asset approach values the business at the sum of its tangible and intangible assets minus liabilities (Net Asset Value, NAV):

• Book value: Balance sheet equity.
• Adjusted book value: Book value with assets/liabilities marked to market.
• Liquidation value: What assets would yield in forced sale.

Best for: Asset-heavy businesses (real estate-rich, equipment-heavy), pre-revenue startups, distressed businesses, holding companies.

Types 4-5: EBITDA Multiple and SDE Multiple

4. EBITDA Multiple (the M&A standard for $1M+ EBITDA businesses)

The EBITDA multiple is the standard valuation method in M&A for established profitable businesses. Formula:

Enterprise Value = EBITDA × Multiple

Typical 2026 ranges by sector:

• HVAC residential/commercial: 5-10x (PE platforms 10-18x)
• Plumbing/electrical: 4-9x
• Manufacturing: 4-8x
• Professional services: 5-12x
• Healthcare services: 6-15x (dental DSO 8-15x, vet 12-20x)
• SaaS: 12-40x

EBITDA must be “normalized” (adjusted for owner comp, one-time items, related-party transactions) to be defensible. Buyers conduct Quality of Earnings (QoE) review to validate normalized EBITDA.

5. SDE Multiple (the small-business standard)

For businesses below $1M in adjusted EBITDA, the standard is SDE multiple (Seller’s Discretionary Earnings multiple):

• SDE = Net Income + Owner’s Salary + Owner’s Benefits + One-time Expenses + Interest + Depreciation/Amortization + Taxes.
• Captures the total economic benefit to the owner-operator.

Typical 2026 ranges by sector (per IBBA Market Pulse Q4 2025 + BizBuySell Insight Report):

• HVAC: 3-5x SDE
• Plumbing: 2.5-4.5x SDE
• Electrical: 2.5-4.5x SDE
• Roofing: 2.5-4x SDE
• Restaurants: 1.5-3x SDE
• E-commerce: 1-2.5x SDE
• Professional services (small): 2-4x SDE

EBITDA vs SDE: when to use each

• EBITDA multiple: Businesses with $1M+ adjusted EBITDA. Multi-employee operations where founder is replaceable.
• SDE multiple: Sub-$1M businesses where founder is essential to operations (founder = key employee + key salesperson + key technician).

Types 6-7: Revenue Multiple and Industry Rules of Thumb

6. Revenue Multiple

Revenue multiples are used when EBITDA is negative, near-zero, or distorted:

• SaaS / software: EV/ARR (Annual Recurring Revenue). Typical: 3-15x ARR depending on growth + NRR.
• Biotech / pharma services: 1-5x revenue.
• Pre-profit growth businesses: Revenue is the most stable metric.

See our full revenue multiple guide for sector benchmarks and PE buyer application.

7. Industry-Specific Rules of Thumb

Many industries have established “rules of thumb” for quick valuations:

• Skilled nursing facilities: Per-bed valuation (varies by region, $40K-$120K/bed).
• Assisted living: Per-bed valuation ($50K-$150K/bed).
• Hotels: Per-key valuation (varies by class, $50K-$500K/key).
• Self-storage: Per-net-rentable-square-foot ($30-$100/sqft).
• Insurance agencies: 2-3x revenue (or 7-12x EBITDA for larger).
• Funeral homes: 3-5x SDE.
• RIA wealth management: 2-4% of AUM (or 7-15x EBITDA).
• HVAC residential: 0.7-1.5x revenue (cross-check with EBITDA multiple).

Rules of thumb are useful for quick estimates but should always be cross-checked with EBITDA or revenue multiples.

Professional valuation standards: AICPA, ASA, NACVA

Professional business valuations are governed by three major standards bodies:

AICPA SSVS-1 (Statement on Standards for Valuation Services)

The AICPA standard for valuations performed by CPAs. Two types of engagements:

• Valuation Engagement: Full valuation with comprehensive analysis. Produces a “Conclusion of Value.”
• Calculation Engagement: Limited-scope valuation. Produces a “Calculated Value” with explicit limitations.

ASA (American Society of Appraisers) BV-VS-VI

ASA business valuation standards. Two designations:

• ASA (Accredited Senior Appraiser): Full credential after 5+ years + exam + case study.
• AM (Accredited Member): Entry-level credential.

NACVA SSCBV (National Association of Certified Valuators and Analysts)

NACVA standards. Two credentials:

• CVA (Certified Valuation Analyst): NACVA’s primary credential.
• MAFF (Master Analyst in Financial Forensics): Specialized litigation/forensic credential.

When to engage a credentialed valuator

• Estate planning + gift tax: IRS-defensible valuations required.
• Divorce: Court-defensible valuations required.
• Litigation / disputes: Standard of value matters (fair value vs fair market value).
• ESOP: DOL-defensible valuations required (annual refresh).
• Buy-sell agreements: Trigger-event valuations.

For M&A transactions, sell-side valuations are typically provided by the M&A advisor (not a credentialed valuator). The advisor uses transaction comps + EBITDA multiple methodology + the advisor’s deal-flow market knowledge.

FAQ: Types of valuation

What are the main types of business valuation?

Understanding the types of valuation methods — and when each applies to your business — is the foundation of any informed sale decision.

Seven standard types: Market Approach (comparable public companies + precedent transactions), Income Approach (DCF), Asset Approach (net asset value), EBITDA Multiple, SDE Multiple, Revenue Multiple, Industry-Specific Rules of Thumb.

Which valuation method is best for selling my business?

For $1M+ EBITDA businesses: EBITDA Multiple is primary (75%+ of lower middle market M&A), cross-checked with DCF and transaction comparables. For sub-$1M businesses: SDE Multiple. For SaaS / pre-profit: Revenue Multiple.

What’s the difference between EBITDA multiple and SDE multiple?

EBITDA = Earnings Before Interest, Taxes, Depreciation, Amortization. Standard for $1M+ businesses with multiple employees. SDE = Seller’s Discretionary Earnings = Net Income + Owner’s Salary/Benefits + Add-backs. Standard for sub-$1M businesses where founder is essential.

When is the Asset Approach used?

Asset-heavy businesses (real estate-rich, equipment-heavy), pre-revenue startups, distressed businesses, holding companies. For operating profitable businesses, asset approach typically produces lower values than income or market approaches.

What is a DCF (Discounted Cash Flow)?

DCF is the standard income-approach methodology: project 5-10 years of free cash flows, calculate terminal value (exit multiple OR perpetuity growth), discount all cash flows to present using WACC.

What are industry rules of thumb?

Quick valuation shortcuts: per-bed for healthcare, per-key for hotels, per-AUM for RIA, per-rooftop for HVAC, per-revenue for insurance agencies. Useful for quick estimates but should always be cross-checked with EBITDA or revenue multiples.

Who certifies professional business valuators?

Three major bodies: AICPA (CPAs performing valuations under SSVS-1), ASA (American Society of Appraisers, ASA + AM credentials), NACVA (National Association of Certified Valuators and Analysts, CVA + MAFF credentials).

When do I need a credentialed valuator vs an M&A advisor?

Credentialed valuator: estate planning, gift tax, divorce, litigation, ESOP, buy-sell triggers. M&A advisor: actual sale transactions, sell-side processes, ownership transitions.

Which valuation produces the highest value?

Typically: EBITDA Multiple (M&A) > DCF > Asset Approach for operating profitable businesses. The actual transaction multiple is what matters; theoretical methods are for negotiation anchoring.

How does CT Acquisitions value my business?

We use EBITDA Multiple as primary method (transaction-comp-based), cross-checked with DCF and recent named-transaction comparables in the sector. As part of our buyer-paid M&A advisory engagement, we provide pre-engagement diligence at no cost — including a defensible valuation range and ownership-succession option analysis.

Related resources from CT Acquisitions

• Revenue multiple valuation
• Exit multiple in DCF and acquisition
• Company valuation methods
• 409A valuation methods
• SDE vs EBITDA business valuation
• SDE multiplier by industry
• Difference between SDE and EBITDA
• Private equity in HVAC 2026