Estimate the value of your small business using common valuation methods.
Revenue Multiple
Profit Multiple (Net Profit)
Understanding Small Business Valuation
Valuing a small business is a crucial step for various purposes, including selling the business, seeking investment, estate planning, or even understanding its financial health. There isn't a single, universally agreed-upon method, and the "true" value often depends on market conditions, industry specifics, and the negotiation between buyer and seller.
This calculator uses two common approaches based on multiples: the Revenue Multiple method and the Profit Multiple (Net Profit) method. These methods are generally considered a good starting point for many small businesses, especially those that are profitable and have predictable revenue streams.
Valuation Methods Explained:
Revenue Multiple: This method values a business based on a multiple of its total annual revenue. The formula is:
Valuation = Annual Revenue * Valuation Multiple This is often used for businesses with lower profit margins or in industries where revenue growth is the primary driver of value. The 'Valuation Multiple' in this case is a revenue multiple specific to the industry.
Profit Multiple (Net Profit): This method values a business based on a multiple of its net profit (earnings). The formula is:
Valuation = (Annual Revenue * (Net Profit Margin / 100)) * Valuation Multiple This is generally considered more accurate for businesses with healthy profit margins, as it reflects the actual earnings capacity. The 'Valuation Multiple' here is a profit multiple (often called an EBITDA multiple if EBITDA is used instead of net profit, but for this calculator, we use net profit).
How to Use the Calculator:
Annual Revenue: Enter the total revenue your business has generated in the last 12 months.
Net Profit Margin (%): Enter the percentage of revenue that remains as net profit after all expenses. For example, if your revenue is $100,000 and your net profit is $15,000, your net profit margin is 15%.
Industry Valuation Multiple: This is a critical input. It's a factor that reflects how similar businesses in your industry are typically valued. For revenue multiples, it's a factor applied to revenue. For profit multiples, it's a factor applied to net profit. You'll need to research industry benchmarks or consult with business brokers or advisors to determine an appropriate multiple for your specific sector and business profile. A higher multiple suggests a higher perceived value by the market.
Primary Valuation Method: Select whether you want to primarily use the Revenue Multiple or the Net Profit Multiple for the calculation.
Important Considerations:
Data Accuracy: Ensure all your financial data (revenue, profit) is accurate and up-to-date.
Industry Research: The 'Valuation Multiple' is highly subjective and industry-dependent. What's standard in one industry could be vastly different in another. Research comparable sales or consult experts.
Adjustments: This calculator provides a simplified estimate. Real-world valuations often involve adjustments for factors like asset value, debt, market position, management team quality, customer concentration, intellectual property, and growth potential.
Professional Advice: For critical decisions like selling or acquiring a business, always consult with a qualified business appraiser, M&A advisor, or accountant.
function calculateValuation() {
var annualRevenue = parseFloat(document.getElementById("annualRevenue").value);
var netProfitMargin = parseFloat(document.getElementById("netProfitMargin").value);
var valuationMultiple = parseFloat(document.getElementById("valuationMultiple").value);
var valuationMethod = document.getElementById("valuationMethod").value;
var valuationResultElement = document.getElementById("valuationResult");
valuationResultElement.innerHTML = "; // Clear previous results
valuationResultElement.style.display = 'none';
// Input validation
if (isNaN(annualRevenue) || annualRevenue <= 0) {
alert("Please enter a valid Annual Revenue greater than 0.");
return;
}
if (isNaN(netProfitMargin) || netProfitMargin 100) {
alert("Please enter a valid Net Profit Margin between 0 and 100.");
return;
}
if (isNaN(valuationMultiple) || valuationMultiple <= 0) {
alert("Please enter a valid Valuation Multiple greater than 0.");
return;
}
var calculatedValuation = 0;
var valuationExplanation = "";
if (valuationMethod === "revenue") {
calculatedValuation = annualRevenue * valuationMultiple;
valuationExplanation = "Calculated using Annual Revenue multiplied by the Revenue Multiple.";
} else if (valuationMethod === "profit") {
var netProfit = annualRevenue * (netProfitMargin / 100);
calculatedValuation = netProfit * valuationMultiple;
valuationExplanation = "Calculated using Net Profit multiplied by the Profit Multiple.";
}
// Format the result as currency (e.g., $1,234,567.89)
var formattedValuation = calculatedValuation.toLocaleString('en-US', {
style: 'currency',
currency: 'USD' // Assuming USD for general purpose, can be changed if needed
});
valuationResultElement.innerHTML = formattedValuation +
"" + valuationExplanation + "";
valuationResultElement.style.display = 'block';
}