How buyers and lenders really set a price

The short version

Rules of thumb are quick shortcuts, such as a percentage of revenue for a given industry.
They give a rough starting point and ignore almost everything that makes your business different.
Serious buyers and their lenders use your adjusted earnings, a multiple and a test of whether the business can pay back the loan.
The loan test often sets the real ceiling on price.

What a rule of thumb is

A rule of thumb is a shortcut that says businesses in an industry sell for a set figure. It might be a percentage of annual revenue, a multiple of earnings or a price per customer. Industry guides publish them, and they get repeated at trade shows and on the golf course.

They are popular because they are easy. You can apply one in a minute.

What they miss

A rule of thumb treats every business in an industry as the same. It does not know:

Whether your earnings are strong or thin.
How much the business depends on you.
Whether one customer brings in half the revenue.
Whether your books will stand up to a lender.
Whether the business is growing or shrinking.

Those are the things that move the price. A rule of thumb can be off in either direction.

What buyers actually use

Professionals value businesses mainly on adjusted earnings multiplied by a multiple drawn from comparable sales. In Pepperdine's 2026 survey, business appraisers gave adjusted earnings multiples the most weight of any multiple they use, and revenue multiples far less.

A buyer borrowing to buy your business also faces a second test from the lender.

The loan test

Most buyers of small businesses borrow a large share of the price. The lender asks one question: can the business earn enough to make the loan payments, with room to spare?

That room is called debt service coverage. For a purchase by a buyer new to the business, financed with an SBA loan, rules effective October 1, 2026 set the minimum at 1.25. In plain terms, the business needs to earn about $1.25 for every $1.00 of loan payments. Banks lending without the SBA set their own minimums; those in Pepperdine's 2026 survey reported a median minimum of 1.20 for total debt. Lenders look at this after the buyer takes a reasonable salary, and they may not count on projected growth to meet it.

If your asking price needs a loan the business cannot cover, a financed buyer cannot pay it, whatever the rule of thumb says.

For anyone quoting a rule of thumb: "Where does that figure come from, and how old is it?" Listen for: a named source and a date. A number with no source is an opinion.
For a lender: "At my asking price, would a typical buyer's loan pass your coverage test?" Listen for: a yes or no based on your actual earnings, and what price would pass.
For a valuation professional: "How far would my business sit from the rule of thumb for my industry, and why?" Listen for: specific reasons tied to your business, in either direction.

Figures from Pepperdine Private Capital Markets Report, 2026, and SBA SOP 50 10 8.1, effective October 1, 2026. Benchmarks describe what happened in other sales. They do not predict yours.

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