Business Valuation Calculator
Estimated Valuation: $0
Seller's Discretionary Earnings (SDE): $0
This estimate represents the "Asset Sale" value including inventory.
Understanding Your Business Valuation
Determining the worth of a company is a critical step for owners planning an exit strategy, seeking investment, or applying for financing. This calculator utilizes the SDE (Seller's Discretionary Earnings) method, which is the gold standard for valuing small to medium-sized enterprises (SMEs).
What is SDE?
Seller's Discretionary Earnings is a calculation of the total financial benefit a single owner-operator derives from the business. To find your SDE, you take your reported Net Profit and "add back" specific expenses that a new owner might not incur or that represent personal benefits. Common add-backs include:
- Owner's salary and payroll taxes.
- Health insurance and retirement contributions.
- Non-recurring legal or consulting fees.
- Discretionary travel or vehicle expenses.
The Power of the Multiplier
The multiplier is the most subjective part of the valuation. It represents how many years of SDE a buyer is willing to pay upfront. Most small businesses trade between 1.5x and 4.0x. Factors that increase your multiplier include:
- Low Owner Involvement: If the business runs without you, it's worth more.
- Recurring Revenue: Subscription models fetch higher multiples than one-off sales.
- Growth Trends: A business with 20% year-over-year growth is more attractive than a stagnant one.
- Industry Health: High-demand sectors like SaaS or specialized healthcare often see 5.0x+ multiples.
Example Valuation Calculation
Imagine a local landscaping company with the following financials:
| Metric | Value |
|---|---|
| Annual Net Profit | $120,000 |
| Owner Salary | $60,000 |
| Industry Multiplier | 2.5x |
| Equipment/Inventory | $40,000 |
Step 1: Calculate SDE. $120,000 + $60,000 = $180,000.
Step 2: Apply Multiplier. $180,000 × 2.5 = $450,000.
Step 3: Add Inventory. $450,000 + $40,000 = $490,000 Total Value.