function calculateValuation() {
var revenue = parseFloat(document.getElementById('annualRevenue').value) || 0;
var sde = parseFloat(document.getElementById('sdeEarnings').value) || 0;
var multiple = parseFloat(document.getElementById('industryMultiple').value) || 0;
var assets = parseFloat(document.getElementById('netAssets').value) || 0;
if (revenue === 0 && sde === 0) {
alert("Please enter either Annual Revenue or SDE Earnings.");
return;
}
// Calculation Logic
// Method 1: SDE * Multiple
var earningsValue = sde * multiple;
// Method 2: Revenue Multiple (simplified industry average 0.5x for most small businesses)
var revenueValue = revenue * 0.5;
// Method 3: Asset-Added (SDE * Multiple + Inventory/FF&E)
var assetAddedValue = earningsValue + assets;
// Final Display Value (Weighted Average)
var finalEstimate = (earningsValue * 0.7) + (revenueValue * 0.3) + (assets * 0.2);
if(finalEstimate < earningsValue) finalEstimate = earningsValue + (assets * 0.5);
document.getElementById('sdeBasedResult').innerText = "$" + earningsValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('revBasedResult').innerText = "$" + revenueValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('assetAddedResult').innerText = "$" + assetAddedValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('finalValue').innerText = "$" + finalEstimate.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0});
document.getElementById('valuationResult').style.display = 'block';
}
Understanding Your Business Valuation
Valuing a small to medium-sized business involves more than just looking at a bank balance. Professional appraisers generally look at three primary metrics: cash flow (SDE), revenue, and tangible assets. This calculator provides an estimate based on these standard industry methods.
What is Seller's Discretionary Earnings (SDE)?
SDE is the most critical metric for small businesses. It represents the total financial benefit a single full-time owner-operator derives from the business. It is calculated by taking your Net Profit and "adding back" expenses like:
Owner's salary and payroll taxes
Non-cash expenses (depreciation and amortization)
Interest expenses
One-time non-recurring expenses (e.g., a one-off legal fee)
Discretionary personal expenses (e.g., company car)
Choosing the Right Industry Multiple
The "multiple" is a number used to multiply your earnings to reach a valuation. Most small businesses sell for between 2x and 4x their SDE. The specific number depends on:
Growth Potential: Is the industry expanding?
Risk: Is the business too dependent on one client?
Transferability: Can the business run without the current owner?
Location & Competition: Is the market saturated?
Realistic Example Calculation
Imagine a local HVAC company with the following stats:
Annual Revenue: $1,200,000
SDE: $300,000
Multiple: 3.0 (Average for home services)
Assets (Trucks/Tools): $100,000
Using the SDE method, the base value is $900,000 ($300k x 3). When adding a portion of the hard assets and considering revenue health, the market value would likely sit between $950,000 and $1,050,000.
Pro Tip: To maximize your valuation before a sale, focus on reducing "owner dependency." A business that runs itself is always worth a higher multiple than one that requires the owner's constant presence.