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

The main types of valuation fall into three approaches, market, income and asset, plus four working methods built on them: the EBITDA multiple, the SDE multiple, the revenue multiple and industry rules of thumb. Which one applies depends on why you need the number, the standard of value that purpose requires, and the size of your business. This guide explains each type and when buyers, lenders, the IRS and courts rely on it.

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 works both sides of the table for founder-owned U.S. businesses ($1M-$25M EBITDA): sell-side processes for owners and buy-side searches for acquirers. 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 three types of valuation are the market approach, the income approach and the asset approach. The market approach prices a business from comparable company sales and public peers. The income approach converts expected future cash flow into a present value, usually through a DCF. The asset approach nets assets against liabilities. Most appraisers consider all three before concluding.

Related Cluster GuideFor the LMM-focused companion on the 5 business valuation methods (2026 LMM reference), see our reference guide.

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.

Types of valuation by purpose and standard of value

The same business can carry several correct values at once, because each purpose uses a different standard of value. Before you compare two numbers, ask which standard each one was built on.

• Fair market value is the tax standard. IRS Revenue Ruling 59-60 defines it as the price at which property would change hands between a willing buyer and a willing seller, neither under any compulsion and both with reasonable knowledge of the relevant facts. It ignores any single buyer’s synergies.
• Fair value for financial reporting is the accounting standard under ASC 820: the price received to sell an asset in an orderly transaction between market participants at the measurement date. It drives purchase price allocations and goodwill impairment tests.
• Fair value under state law is a separate statutory standard used in dissenting shareholder and oppression cases. Many states exclude minority and marketability discounts under it, so it often lands above fair market value.
• Investment value is what one specific buyer would pay, including its own synergies and financing. This is the number a competitive M&A process tries to surface.
• Liquidation value is what the assets bring if the business stops operating, in an orderly sale or a forced one. It sets the floor.

Purpose	Standard of value	Who usually prepares it
Selling the business	Investment value, tested against fair market value	M&A advisor, supported by a quality of earnings review
Estate and gift tax	Fair market value (Rev. Rul. 59-60)	Credentialed appraiser (ASA, ABV, CVA)
Stock options at a private company	Fair market value under IRC Section 409A	Independent 409A valuation firm
Purchase price allocation, goodwill impairment	Fair value under ASC 820	Valuation firm working alongside the auditor
Shareholder dispute or divorce	Fair value or fair market value, as state law sets	Credentialed appraiser acting as expert witness
ESOP transaction	Fair market value (adequate consideration under ERISA)	Independent appraiser for the ESOP trustee

If you are preparing to sell, know your fair market value as a floor, then look for the buyer whose investment value is highest. If you need an option-grant valuation instead, see our list of 409A valuation firms.

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?

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 the primary method in 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 M&A advisory engagement, we provide pre-engagement diligence at no cost, including a defensible valuation range and ownership-succession option analysis.

What is the difference between fair market value and fair value?

Fair market value is the tax standard from IRS Revenue Ruling 59-60: a hypothetical willing buyer and willing seller, both informed and under no compulsion. Fair value has two meanings. For financial reporting under ASC 820, it is an exit price between market participants. In state shareholder disputes, it is a statutory standard that often excludes minority and marketability discounts.

What is a Big 4 valuation?

It is a valuation prepared by one of the four largest accounting firms: Deloitte, PwC, EY or KPMG. Their valuation teams mostly serve financial reporting, tax and large transactions, such as purchase price allocations and goodwill impairment testing. For a founder-owned business sale, a Big 4 report is rarely needed; buyers rely on quality of earnings work and market comparables.

What is liquidation value?

Liquidation value is what a business’s assets would bring if it stopped operating and sold them, minus liabilities and selling costs. An orderly liquidation allows time to find the right buyer for each asset. A forced liquidation assumes a quick sale, often at auction, and yields less. It is the floor under every other type of valuation.

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