Methodology

How the valuations and math actually work

No black box. Here's exactly how BizDealIQ turns a listing into a verdict — the comp ranges, the formulas, and where the numbers come from.

Valuation: SDE × industry multiple

Small, owner-operated businesses are valued on SDE (Seller's Discretionary Earnings) — roughly the total annual benefit to a single owner-operator (net profit plus the owner's salary, perks, and one-time add-backs). BizDealIQ multiplies your SDE by a curated low / typical / high multiple for the industry to produce a defensible value range:

value range = SDE × (low … typical … high industry multiple)

The multiple is looked up from the table below and applied to your SDE in code — it is never invented by the AI. The same inputs always produce the same range.

Industry	Low	Typical	High	What drives the spread
Laundromat	2.50×	3.50×	4.50×	Card systems, lease terms, and equipment age drive the spread. Real estate, if included, is valued separately.
Car Wash	3.00×	4.00×	5.50×	Express/tunnel washes with membership revenue command the high end; self-serve bays sit lower.
HVAC	2.50×	3.25×	4.50×	Recurring maintenance contracts and a stable crew push multiples up; owner-dependent shops sit lower.
Plumbing	2.00×	3.00×	4.00×	Service/repair mix, licensing depth, and call volume consistency matter most.
Landscaping / Lawn Care	2.00×	2.75×	3.75×	Recurring commercial contracts beat one-off residential; seasonality compresses the low end.
Restaurant / Food Service	1.50×	2.25×	3.00×	Thin, owner-operated margins keep multiples low; established franchises and strong leases help.
E-commerce	2.50×	3.50×	5.00×	Brand strength, traffic diversification, and margin durability drive the range.
Marketing / Creative Agency	2.00×	3.00×	4.50×	Retainer revenue and reduced founder dependence push multiples up.
Self-Storage	4.00×	6.00×	8.00×	Often valued on cap rate; SDE multiples run high due to low labor and sticky tenants.
Vending	1.50×	2.25×	3.00×	Route density and contract locations matter; equipment age weighs on the low end.
Auto Repair Shop	2.00×	2.75×	3.75×	Repeat customer base, certified techs, and equipment condition set the range.
Cleaning / Janitorial	1.75×	2.75×	3.75×	Recurring commercial janitorial contracts beat one-off residential cleans; low capital needs help cash flow.
Salon / Spa	1.50×	2.25×	3.25×	Booth-rent vs. commission models, stylist retention, and product revenue drive the spread.
Daycare / Childcare	2.50×	3.25×	4.25×	Licensed capacity, waitlists, and director/staff stability matter; real estate often valued separately.
Gym / Fitness Studio	1.50×	2.50×	3.50×	Recurring memberships help; high churn and equipment leases hurt.
Liquor Store	2.00×	2.75×	3.50×	License value, location, and inventory turns drive value; inventory is typically added on top of the multiple.
Electrical Contractor	2.25×	3.00×	4.00×	Licensed crews, recurring service/maintenance work, and commercial contracts push multiples up.
Pest Control	3.00×	4.00×	5.50×	Recurring quarterly/monthly contracts make pest control one of the stickier home-service models — high end reflects strong route density.
Convenience Store	2.00×	2.75×	3.50×	Fuel vs. in-store margin mix, location, and brand/franchise ties matter; inventory often added on top.
Other / General Small Business	2.00×	3.00×	4.00×	A conservative cross-industry default for owner-operated Main-Street businesses when a closer category isn't listed.

Source & basis: BizBuySell Insight Report + BVR/Business Reference Guide broker rules-of-thumb, 2024–2025. These are rule-of-thumb ranges across 19+ industries, not appraisals. They represent where small, owner-operated businesses in each category typically trade. Actual value depends on add-back quality, lease terms, customer concentration, recurring revenue, and many factors a real appraisal would weigh — multiples are applied to SDE only.

The SOWS acquisition score

Popularized by Codie Sanchez, SOWS scores how good an acquisition target is. Counter-intuitively, a higher score is better — the more stale, old, weak, and simple a business is, the more upside a new owner can unlock. BizDealIQ scores every deal on all four dimensions and recomputes the total in code so shortlists are directly comparable.

SStale

Outdated marketing, branding, and operations — the easiest upside to capture after you take over.

OOld

A long-tenured, often retirement-age seller who is motivated and more likely to finance the deal.

WWeak

Under-optimized systems, pricing, and processes you can tighten up quickly.

SSimple

A business model simple enough that a new owner can actually run and grow it.

Deterministic financing math

Every payment and ratio is computed from a real formula — not estimated by a language model. These are the exact calculations behind the free calculators and the analyzer's deal economics.

Monthly payment (amortized loan)

M = P · r · (1+r)^n / ((1+r)^n − 1)

P = principal, r = monthly rate (annual rate ÷ 12), n = number of months. The basis for seller-note and SBA payments and the full amortization schedule.

DSCR (debt-service coverage ratio)

DSCR = SDE / annual debt service

How comfortably the business covers its loan payments. Under ~1.25× is tight; 1.25–1.5× is workable; above 1.5× is comfortable. Below 1.0× the deal doesn't cover its own debt.

Cash-on-cash return

CoC = (SDE − annual debt service) / cash invested

Your annual return on the cash you actually front (the down payment). Only meaningful once the deal covers its debt.

Simple payback

payback (years) = cash invested / cash flow after debt

How many years of post-debt cash flow it takes to recoup your down payment. 3–5 years is typical; much longer needs a reason.

What the AI does — and doesn't

We use a top AI model only for the judgment calls: reading a messy listing, pulling out the numbers, choosing the closest industry category, scoring the qualitative SOWS factors, and drafting the documents. The numbers that matter — the valuation range, the multiple lookup, the SOWS total, and all the financing math — are computed deterministically in code, so they are consistent, defensible, and never hallucinated.

BizDealIQ provides educational estimates only — not financial, investment, tax, legal, or business-valuation advice. Multiples and outputs are rules of thumb, not appraisals. Always do your own due diligence and consult licensed professionals before making an offer or purchasing a business.

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