Business Valuation Calculator
Estimate the market value of your company based on earnings and industry multiples.
How to Value a Business: A Comprehensive Guide
Determining the value of a business is both an art and a science. Whether you are looking to sell your company, bring on a new partner, or simply understand your net worth, a formal valuation is essential. This calculator uses the most common approach for small to medium-sized enterprises (SMEs): the Multiples Approach.
Key Valuation Metrics Explained
EBITDA: This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is essentially the "cash flow" or true operating profit of the business before accounting for financing and tax structures.
Industry Multiplier: Different industries command different multiples. A high-growth tech company might have a multiple of 6x-10x EBITDA, while a local hair salon or landscaping business might trade at 2x-3x EBITDA.
Realistic Example: Local Manufacturing Shop
- Annual Profit (EBITDA): $200,000
- Industry Multiple: 4.0x
- Inventory & Equipment: $100,000
- Calculation: ($200,000 × 4.0) + $100,000 = $900,000
The Multiples Approach Formula
The core formula used in this calculator is:
Valuation = (Earnings × Multiplier) + Net Assets – Liabilities
Why Asset and Debt Adjustment Matters
Business sales are often structured as "Cash-Free, Debt-Free." This means the seller keeps the cash in the bank but must pay off all business debts before the closing. The buyer expects a certain level of "Working Capital" (Inventory and Equipment) to be included in the price. If you have significant high-value equipment or inventory, it adds to the baseline multiple value.
Three Factors That Increase Your Multiple
- Recurring Revenue: Subscription models or long-term contracts are valued much higher than one-off project work.
- Owner Independence: If the business can run without you (the owner) being there every day, the multiple increases.
- Customer Diversity: If no single customer accounts for more than 10-15% of your revenue, your risk profile is lower.