THE SHORT ANSWER
Start with reconciled plumbing earnings, then define the owner’s production, supervision and management work. Distinguish owner-operator benefit from earnings after newly required replacement costs. Review service mix, payment timing and included fleet and equipment. A personal license, commercial client mix or long operating history does not assign a standard multiple or automatic value premium.
Build the earnings bridge from actual jobs
Reconcile residential calls, commercial service, installations and other supported revenue with job costs and the ledger. Examine rework, credits, collections and unfinished jobs across consistent periods. Commercial sales may have different collection and completion obligations; they are not automatically worth more than residential work.
Use the earnings basis guide to document adjustments. Owner draws are not automatically wage expense. Personal vehicle loan principal, capital renovation and equipment purchases are not blanket deducted operating expenses available to add back. Avoid counting depreciation and a capital purchase twice.
SEC adjusted-measure guidance concerns issuer reporting.
(SEC: non-GAAP financial measure interpretations)Use it as a presentation reference with accountant review, not a prescribed private-company SDE formula or automatic approval of excluded costs.
Separate new replacement costs from existing expense
| Invented owner-role bridge | Amount |
|---|---|
| Assumed reconciled owner-operator earnings basis | $210,000 |
| Specified new replacement wages, not already deducted | −$74,000 |
| Specified new employment costs, not already deducted | −$16,000 |
| Remainder after only these new costs | $120,000 |
Identify the work the example would replace before applying any deduction. Do not subtract existing technician payroll again. If coverage is still proposed, keep the assumption separate from demonstrated operations.
Review licensed coverage as an operating condition
Map owner production, apprentice supervision, estimating, dispatch and administration. Illinois IDPH describes licensing, registration and supervision responsibilities.
(Illinois IDPH: plumbing licenses and contractor registration)Use this state-specific example to identify questions for the actual jurisdictions and responsible advisors. Credentials and permissions need their own review; they are not a separable dollar premium simply because the seller holds them. Consider documented coverage and required costs rather than pricing an assumed transferable personal license.
Define included fleet, tools and working capital
List owned, financed, leased and personally owned vehicles and equipment separately. Review title, condition and actual maintenance needs with appropriate specialists. Specify included parts, receivables and remaining job obligations.
SBA sale guidance addresses assets and liabilities in the agreement.
(SBA: closing or selling a business)Define what an indicated whole-business value includes before adding vehicles or tools separately. Use the working-capital worksheet for agreed delivery and deposit treatment. A photograph or book cost is not an appraisal.
Compare relevant evidence with consistent earnings, period and asset scope. No 2.0–3.5x sector range, average 3x, $2M metric cutoff, ±15% adjustment or certified free-tool appraisal is established here.
Owner questions
Is SDE the cash remaining after debt service?
No. Define the earnings measure and separately model financing, tax, investment and working capital.
Can I add all vans to an earnings-based value?
First determine whether that value already includes the operating fleet and the actual ownership scope.
Does a commercial customer base assign a higher multiple?
Review actual margins, obligations, retention and collection timing without an automatic premium.
Sources and review scope
Source review completed . The sources below support the identified concepts or rules; they do not validate hypothetical amounts or a valuation of your business.
- SEC: non-GAAP financial measure interpretations
Staff interpretations last updated December 2022: recurring operating costs and distinguishing EBITDA from adjusted measures. SEC reporting context, not a universal private-sale rule or automatic acceptance of add-backs.
- Illinois IDPH: plumbing licenses and contractor registration
Illinois-specific individual licensing, contractor registration, insurance and apprenticeship supervision guidance. Not a nationwide rule, price for a personal license, complete statutory review or sale-transfer approval.
- SBA: closing or selling a business
Valuation approaches, sale agreements, assets and ownership transfer.
Confirm tax, legal, accounting and lending applications with the relevant professionals. Historical market observations describe the stated period and reported sample.
This is educational material. Industry figures and program rules can change; check the original sources and your advisors before applying them to a transaction. Calculator scenarios are not appraisals, lending decisions, or offers.
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