Business Valuation Calculator

This calculator applies the market (multiple-of-earnings) method used by business brokers, buyers and lenders. You enter adjusted annual earnings, the multiple you think comparable businesses sell for, and the cash and debt on the balance sheet; it returns enterprise value, the net debt adjustment and the estimated equity value.

For owner-operated businesses, use seller's discretionary earnings (SDE): profit before the owner's own salary, perks, interest, depreciation and one-off costs. For larger businesses with a management team, use EBITDA after paying a market salary for every role, and expect a higher multiple. The EBITDA calculator builds that figure from an income statement.

The multiple carries most of the judgment. It reflects growth, how much the business depends on the owner, customer concentration, recurring revenue and industry. The result is a starting point for negotiation, not a formal appraisal; for a sale, divorce, estate or SBA loan you will usually need a credentialed business appraiser.

The market approach is one of three standard valuation approaches (market, income and asset) recognized in the AICPA's valuation standard and in IRS Revenue Ruling 59-60. An income approach such as discounted cash flow values the same earnings from projected cash flows and a discount rate; see the net present value calculator. Asset-heavy or loss-making businesses are often valued on net assets instead.

Buyers value the profit a new owner would earn, so owner-specific and one-off costs are added back to net profit. Each add-back needs evidence in the books; unsupported add-backs are the first thing a buyer's accountant removes.

Two businesses with the same earnings can sell for very different prices. Buyers pay more for:

• Recurring revenue: contracts and subscriptions are more predictable than one-off sales.
• Low owner dependence: a manager who runs daily operations, documented processes, and customer relationships that are not personal to the owner.
• No customer concentration: if one customer is a large share of revenue, buyers discount for the risk of losing them.
• Growth and clean books: several years of rising, well-documented earnings.
• Size: larger businesses generally command higher multiples because they are less risky and attract more buyers.

Use multiples from comparable sold businesses in your industry and size range — business brokers and transaction databases publish these — rather than from public-company valuations, which are much higher.

Most small business sales are priced cash-free and debt-free: the seller keeps the cash, pays off the debt, and the buyer pays the enterprise value. That is why the calculator shows enterprise value separately. The buyer will usually expect a normal level of working capital (inventory and receivables, less payables) to be left in the business; if less is delivered, the price is often adjusted down. Check the working capital calculator to see what your business typically carries.