Enter your business financials to see an estimated value.
Understanding Small Business Valuation
Determining the value of a small business is a complex process, but it's crucial for various reasons, including selling the business, seeking investment, estate planning, or even for internal strategic purposes. This calculator provides a simplified estimation based on common valuation methodologies, primarily focusing on multiples of earnings and considering growth and risk factors.
Key Valuation Metrics Used:
Annual Revenue: The total income generated from sales of goods or services over a year. It's a fundamental indicator of business size and market penetration.
Gross Profit Margin: Calculated as ((Annual Revenue – Cost of Goods Sold) / Annual Revenue) * 100. This metric shows how efficiently a business manages its direct costs of production or service delivery. A higher margin often indicates better profitability and operational control.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is a measure of a company's operating performance. It's often used as a proxy for cash flow from operations and is a common metric in business valuation because it removes the effects of financing and accounting decisions.
Industry Valuation Multiple: This is a multiplier (e.g., 3x, 5x) applied to a business's earnings or revenue, derived from comparable sales in the same industry. Multiples vary significantly based on industry, growth potential, market position, and economic conditions.
Annual Growth Rate: The percentage increase in revenue or profit year-over-year. Businesses with higher growth rates are typically valued more highly.
Risk Factor: An assessment of the potential uncertainties and threats to the business's future performance. Lower risk generally leads to a higher valuation multiple. This calculator uses a simple 1-5 scale where 1 is very low risk and 5 is very high risk.
How the Calculation Works:
This calculator uses a two-pronged approach to estimate business value:
EBITDA Multiple Method:
The core of the valuation is often based on the EBITDA multiple. The formula is:
Value = EBITDA * (Industry Valuation Multiple adjusted for Risk)
The Industry Valuation Multiple is adjusted for risk. A simple adjustment could be:
Adjusted Multiple = Base Multiple - (Risk Factor - 1)
For example, if the base multiple is 5x and the risk factor is 3, the adjusted multiple would be 5 – (3 – 1) = 3x. If the risk factor is 1, the multiple remains unchanged.
Revenue Multiple Method (as a secondary check):
Sometimes, especially for high-growth but lower-profit businesses, revenue multiples are also considered.
Value = Annual Revenue * (Revenue Multiple adjusted for Gross Profit Margin and Risk)
The revenue multiple itself is influenced by the gross profit margin and the risk factor. A simplified approach here involves applying a lower multiple if the gross profit margin is low or risk is high. For this calculator, we primarily focus on the EBITDA method for a more robust valuation, but the gross profit margin and growth rate are used to contextualize the industry multiple selection and the overall risk perception.
The calculator's primary output is based on the EBITDA multiple method, with the risk factor directly influencing the chosen industry multiple. The growth rate is implicitly considered in the selection of an appropriate industry multiple; higher growth generally commands higher multiples.
Interpreting the Results:
The calculated value is an *estimation*. It is not a definitive appraisal. Factors not captured by this calculator, such as unique intellectual property, customer lists, brand reputation, quality of management, economic conditions, and the specific terms of a potential sale, can significantly impact the actual value. It's always recommended to consult with professional business brokers, appraisers, or financial advisors for a comprehensive valuation.
Use this tool as a starting point to understand what your business might be worth based on its financial performance and industry benchmarks.
function calculateBusinessValue() {
var annualRevenue = parseFloat(document.getElementById("annualRevenue").value);
var grossProfitMargin = parseFloat(document.getElementById("grossProfitMargin").value);
var ebitda = parseFloat(document.getElementById("ebitda").value);
var valuationMultiple = parseFloat(document.getElementById("valuationMultiple").value);
var growthRate = parseFloat(document.getElementById("growthRate").value);
var riskFactor = parseFloat(document.getElementById("riskFactor").value);
var resultDiv = document.getElementById("result");
// Input Validation
if (isNaN(annualRevenue) || annualRevenue <= 0) {
resultDiv.innerHTML = "Please enter a valid Annual Revenue (greater than 0).";
return;
}
if (isNaN(grossProfitMargin) || grossProfitMargin 100) {
resultDiv.innerHTML = "Please enter a valid Gross Profit Margin (0-100%).";
return;
}
if (isNaN(ebitda) || ebitda <= 0) {
resultDiv.innerHTML = "Please enter a valid EBITDA (greater than 0).";
return;
}
if (isNaN(valuationMultiple) || valuationMultiple <= 0) {
resultDiv.innerHTML = "Please select a valid Industry Valuation Multiple.";
return;
}
if (isNaN(growthRate) || growthRate < 0) {
resultDiv.innerHTML = "Please enter a valid Annual Growth Rate (0 or greater).";
return;
}
if (isNaN(riskFactor) || riskFactor 5) {
resultDiv.innerHTML = "Please select a valid Risk Factor (1-5).";
return;
}
// — Calculation Logic —
// Adjust the valuation multiple based on the risk factor.
// A higher risk factor decreases the multiple.
// We subtract (riskFactor – 1) to ensure risk factor 1 has no impact.
var adjustedValuationMultiple = valuationMultiple – (riskFactor – 1);
// Ensure the adjusted multiple doesn't go below a reasonable minimum (e.g., 1x)
if (adjustedValuationMultiple < 1) {
adjustedValuationMultiple = 1;
}
// Calculate the estimated business value using the adjusted EBITDA multiple
var estimatedValue = ebitda * adjustedValuationMultiple;
// Format the result with commas and currency symbol
var formattedValue = '$' + estimatedValue.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
resultDiv.innerHTML = "Estimated Value: " + formattedValue + "";
}