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Business Valuation Calculator (SDE Method)

Seller's Discretionary Earnings (Net profit + Owner Salary + Add-backs)
Standard industry multiple (usually 2.0 to 5.0)
Current market value of saleable inventory
Outstanding loans or liabilities to be deducted

Estimated Valuation: $0.00

function calculateValuation() { var sde = parseFloat(document.getElementById('sde_input').value); var multiplier = parseFloat(document.getElementById('multiplier_input').value); var inventory = parseFloat(document.getElementById('inventory_input').value) || 0; var debt = parseFloat(document.getElementById('debt_input').value) || 0; if (isNaN(sde) || isNaN(multiplier)) { alert('Please enter valid numbers for SDE and Multiplier'); return; } var baseValue = sde * multiplier; var finalValue = baseValue + inventory – debt; var displayValue = finalValue.toLocaleString('en-US', { style: 'currency', currency: 'USD' }); document.getElementById('final_value').innerHTML = displayValue; document.getElementById('valuation_breakdown').innerHTML = "This estimate is based on an Asset + Earnings approach. The earnings-based value of " + baseValue.toLocaleString('en-US', { style: 'currency', currency: 'USD' }) + " (SDE × Multiplier) was adjusted by adding " + inventory.toLocaleString('en-US', { style: 'currency', currency: 'USD' }) + " in inventory and subtracting " + debt.toLocaleString('en-US', { style: 'currency', currency: 'USD' }) + " in liabilities."; document.getElementById('result_area').style.display = 'block'; }

How to Calculate Business Value

Determining the fair market value of a small to medium-sized business typically involves the Seller's Discretionary Earnings (SDE) method. This financial metric is used to represent the true bottom-line profit available to a single owner-operator after adding back non-essential expenses and one-time costs.

Understanding SDE (Seller's Discretionary Earnings)

To calculate SDE, you start with your net income and "add back" specific items:

  • Owner's Salary and Payroll Taxes
  • Non-cash expenses (Depreciation and Amortization)
  • Interest expenses on business debt
  • One-time expenses (Legal fees for a patent, website redesign)
  • Personal expenses run through the business (Auto leases, personal travel)

Choosing the Right Multiplier

Multipliers usually range from 2.0 to 5.0. A "3x" multiple means the buyer is paying for 3 years of current profit levels. Factors that increase your multiplier include:

  • Growth Trends: Is revenue increasing year-over-year?
  • Market Share: Do you have a competitive moat or brand?
  • Transferability: Can the business run without the current owner?
  • Industry: Tech and SaaS businesses often command 5x+, while local retail might be 2x.

Valuation Example

Example: A local landscaping company has a net profit of $100,000. The owner takes a $60,000 salary and the business pays for their $5,000 truck lease. The SDE is $165,000. If the industry average multiple is 2.5x, the base value is $412,500. If they have $20,000 in equipment/inventory and no debt, the total value is $432,500.

Key Factors That Influence Valuation

While this calculator provides a mathematical starting point, real-world deals are influenced by:

  1. Customer Concentration: If one client represents 50% of revenue, the risk is higher and the multiple decreases.
  2. Recurring Revenue: Subscription-based models are valued much higher than one-off project models.
  3. Financial Transparency: Clean, audited books build trust and can increase the final sale price.
  4. Current Market Conditions: Interest rates and the broader economy dictate buyer appetite and lending availability.

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