Comping Small Businesses vs Houses: SDE Multiples vs the 70% Rule
A lawn care company and a 3-bedroom house both "sell for a number." But the person who buys the house is betting on resale value, and the person who buys the business is betting on earnings. Different engine, different math. Here is how I comp both, side by side.
The house: ARV and the 70% rule
When I comp a house I work backward from the After Repair Value (ARV), which is what it will sell for fixed up. Then I apply the 70% rule to find my Maximum Allowable Offer (MAO):
Worked example: 3-bed house flip
If I pay $179,000, spend $45,000 to rehab, and sell at $320,000, I clear roughly $96,000 before holding costs and closing. The whole method is anchored on a resale comp. The business does not work that way at all.
The business: SDE multiples
A small business is valued on Seller's Discretionary Earnings (SDE), which is the pretax, pre-owner-salary profit. You multiply SDE by an industry multiple, typically 2x to 3.5x for small businesses, to get the value. There is no ARV and no 70% rule.
Worked example: lawn care company
The lawn company is worth $252,000 even though its revenue is higher than the house's ARV. The value rides on the $90,000 the business throws off to an owner-operator, not on what it would resell for.
Side by side
| Lever | House | Business |
|---|---|---|
| Value anchor | Resale comps (ARV) | Earnings (SDE) |
| Core formula | 70% of ARV minus rehab | SDE × multiple |
| Typical multiple | n/a (uses % rule) | 2.0x to 3.5x |
| What kills the deal | Rehab overrun, soft comps | Churned customers, owner-dependent |
| My offer cap | 70% of ARV | ~4x SDE at most |
Operator rule
On the house I will not pay above $179,000. On the lawn company I will not pay above about $360,000 (4x SDE), because above that the payback stretches past what a buyer will tolerate. Different asset, same discipline: pay a discount to the real number.
The trap is mixing the two. People try to 70%-rule a business, or SDE-multiple a house, and both break. Use the House Value Calculator for ARV and the 70% rule, and the Business Value Calculator for SDE multiples. They are not interchangeable.
Related calculators & reading
→ House Value Calculator · ARV, MAO, and the 70% rule → Business Value Calculator · SDE multiples for small businesses → Land Value Calculator · comping raw dirt by $/acreWant the deal math in your inbox?
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