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Business Valuation Calculator (SDE Method)

Estimate the fair market value of your small business using the Seller's Discretionary Earnings (SDE) model.

Estimated Business Value
$0
Gross Profit: $0
EBITDA: $0
Total SDE: $0
Profit Margin: 0%

Understanding Small Business Valuation: The SDE Method

Valuing a small business differs significantly from valuing a publicly traded corporation. For most owner-operated businesses with annual revenues under $5 million, the Seller's Discretionary Earnings (SDE) method is the industry standard. This approach focuses on the total financial benefit a single full-time owner-operator derives from the business.

What are Seller's Discretionary Earnings (SDE)?

SDE is a calculation used to normalize a business's earnings to show its true profit potential. It takes the net profit and "adds back" expenses that are specific to the current owner but may not be necessary for a new buyer. Common add-backs include:

  • Owner's Salary: The compensation paid to the primary owner.
  • Personal Perks: Personal travel, health insurance, or auto expenses run through the business.
  • One-time Expenses: Non-recurring legal fees, major equipment repairs, or website redesigns.
  • Interest and Depreciation: Non-cash expenses or financing-related costs.

The Formula Used in This Calculator

1. Gross Profit = Revenue – COGS
2. EBITDA = Gross Profit – Operating Expenses
3. SDE = EBITDA + Owner's Salary + Add-backs
4. Business Value = SDE × Industry Multiplier

Choosing the Right Multiplier

The multiplier typically ranges from 1.5x to 4.0x. Factors that increase your multiplier include:

  • Recurring revenue (subscriptions or long-term contracts).
  • High brand recognition and low owner-dependency.
  • A history of consistent year-over-year growth.
  • Clean, verifiable financial records.

Practical Example

Imagine a local HVAC company with $800,000 in revenue. Their COGS is $300,000 and operating expenses are $250,000. The owner takes a $90,000 salary and has $10,000 in add-backs (personal car lease). In the HVAC industry, a typical multiplier is 2.8.

  • EBITDA: $800k – $300k – $250k = $250,000
  • SDE: $250k + $90k + $10k = $350,000
  • Valuation: $350,000 × 2.8 = $980,000

This business would likely list for approximately $980,000 in a fair market transaction.

function calculateBusinessValuation() { // Get Input Values var revenue = parseFloat(document.getElementById('biz_revenue').value); var cogs = parseFloat(document.getElementById('biz_cogs').value); var expenses = parseFloat(document.getElementById('biz_expenses').value); var salary = parseFloat(document.getElementById('biz_salary').value); var addbacks = parseFloat(document.getElementById('biz_addbacks').value); var multiplier = parseFloat(document.getElementById('biz_multiplier').value); // Validation if (isNaN(revenue) || isNaN(multiplier)) { alert("Please enter at least the Annual Revenue and an Industry Multiplier."); return; } // Default 0 for optional fields if empty cogs = isNaN(cogs) ? 0 : cogs; expenses = isNaN(expenses) ? 0 : expenses; salary = isNaN(salary) ? 0 : salary; addbacks = isNaN(addbacks) ? 0 : addbacks; // Calculations var grossProfit = revenue – cogs; var ebitda = grossProfit – expenses; var sde = ebitda + salary + addbacks; var valuation = sde * multiplier; var margin = (revenue > 0) ? (ebitda / revenue) * 100 : 0; // Format as Currency var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', maximumFractionDigits: 0 }); // Display Results document.getElementById('total_valuation_display').innerText = formatter.format(valuation); document.getElementById('gp_display').innerText = formatter.format(grossProfit); document.getElementById('ebitda_display').innerText = formatter.format(ebitda); document.getElementById('sde_display').innerText = formatter.format(sde); document.getElementById('margin_display').innerText = margin.toFixed(1) + "%"; // Show Result Box document.getElementById('valuation_result_box').style.display = 'block'; // Smooth Scroll to Result document.getElementById('valuation_result_box').scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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