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Business Valuation Calculator

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

1.5x (High Risk/Low Growth) 2.0x (Standard Retail/Service) 2.5x (Healthy Cash Flow) 3.0x (Average SMB) 3.5x (Strong Growth/Assets) 4.0x+ (High Tech/Scalable)

Estimated Valuation:

$0
function calculateValuation() { var profit = parseFloat(document.getElementById('netProfit').value) || 0; var salary = parseFloat(document.getElementById('ownerSalary').value) || 0; var addBacks = parseFloat(document.getElementById('addBacks').value) || 0; var mult = parseFloat(document.getElementById('multiplier').value) || 1; var sde = profit + salary + addBacks; var valuation = sde * mult; if (valuation <= 0) { alert("Please enter valid financial figures to calculate the value."); return; } document.getElementById('finalValue').innerText = "$" + valuation.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0}); document.getElementById('breakdown').innerHTML = "Calculation Breakdown:Seller's Discretionary Earnings (SDE): $" + sde.toLocaleString() + "Applied Multiplier: " + mult + "xNote: This is a baseline estimate. Real-world valuations include inventory, debt, and market conditions."; document.getElementById('valuationResult').style.display = "block"; }

Understanding Business Valuation: How Much is Your Company Worth?

Determining the value of a business is both an art and a science. Whether you are preparing for an exit, looking for investors, or simply tracking your growth, understanding the "SDE Multiplier Method" is essential for small to medium-sized enterprise (SME) owners.

What is Seller's Discretionary Earnings (SDE)?

Most small businesses are valued based on SDE rather than EBITDA. SDE represents the total financial benefit a single full-time owner-operator derives from the business. To calculate it, you start with your net profit and "add back" specific items:

  • Owner's Salary: The compensation you pay yourself.
  • Non-recurring Expenses: One-time legal fees, website redesigns, or equipment repairs.
  • Discretionary Expenses: Personal travel, vehicle leases, or health insurance paid through the business.
  • Depreciation & Amortization: Non-cash expenses that reduce taxable income but don't impact cash flow.

Choosing the Right Multiplier

The multiplier is the most subjective part of the calculation. While most small businesses sell for between 2.0x and 3.5x SDE, several factors can push this number higher or lower:

  1. Market Demand: Is your industry trending upward?
  2. Transferability: Can the business run without you? If the owner is the "face" of the brand, the multiplier drops.
  3. Customer Concentration: If one client represents 50% of your revenue, the risk is higher.
  4. Growth Trends: A business with 20% year-over-year growth commands a premium.

Example Calculation

Imagine a local coffee roastery with the following annual financials:

  • Net Profit: $120,000
  • Owner's Salary: $70,000
  • Add-backs: $10,000 (one-time equipment upgrade)
  • Total SDE: $200,000
  • Industry Multiplier: 2.5x
  • Estimated Value: $500,000

Frequently Asked Questions

Does the valuation include inventory?
In many small business sales, the inventory (at cost) is added on top of the calculated SDE value. For example, if the business is valued at $500k and has $50k in inventory, the total asking price might be $550k.
How can I increase my business value?
The best way to increase value is to improve "owner independence." If you can prove the business operates profitably while you are on vacation, the risk for a buyer decreases, and your multiplier increases.

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