How to use the business valuation calculator
The calculator has four tabs. Earnings multiple is the main method for a profitable business. Revenue multiple and Asset-based are cross-checks, and Compare methods puts all three next to each other.
- Choose the earnings measure. Pick SDE for a business where the owner works full time in it, adjusted EBITDA for one run by paid managers.
- Enter net profit before tax from the latest full-year profit and loss statement or tax return. Use a typical year; if one year was unusual, average the last two or three.
- Add back what a buyer will not pay. For SDE, enter the owner’s salary and benefits. Then interest, depreciation and amortization, and documented one-time or personal expenses run through the business.
- Set a low and high multiple. The calculator returns the value at both ends and the midpoint.
- On the Revenue multiple tab, enter annual sales and a multiple range. Adding SDE or EBITDA shows the earnings multiple the revenue value implies.
- On the Asset-based tab, list assets at what they would sell for today and the liabilities at their current balances.
The formulas
Adjusted EBITDA = SDE − Owner's pay and benefits
Value = Earnings × MultipleRun with the low and the high multiple to get a range; the midpoint is their average. The revenue method uses Value = Annual revenue × Revenue multiple.
Goodwill = Earnings-based value − Net asset valueAssets are valued at what they would fetch today, which can differ a lot from book value on the balance sheet.
A worked example
An owner-run business reports $140,000 of pre-tax profit. The owner draws $90,000 in salary and benefits, and the books show $8,000 of interest, $22,000 of depreciation and $15,000 of one-time and personal expenses.
Adding these back gives seller’s discretionary earnings of $275,000. At 2.0× to 3.0× SDE, the business is worth $550,000 to $825,000, with a midpoint of $687,500.
As a cross-check, $1,150,000 of revenue at 0.50× to 0.70× gives a midpoint of $690,000, which is 2.51× the earnings. On the asset side, $485,000 of assets less $195,000 of liabilities leaves a net asset value of $290,000.
The earnings midpoint is $397,500 above the net assets: that gap is goodwill, the price of the customers, staff and systems that turn the assets into profit.
Valued on adjusted EBITDA instead, the same business earns $185,000 once the owner’s pay is treated as a cost. At 3.5× to 4.5×, it is worth $647,500 to $832,500. The two methods land in a similar place because the lower earnings figure is matched by a higher multiple.
What moves the multiple
Small-business SDE multiples are often in the low single digits, but the spread is wide and the right figure depends on the business, not on a rule. Buyers pay more for:
- Size. Larger earnings usually command higher multiples, partly because bigger businesses are less fragile and attract more buyers.
- Growth and stability. Several years of steady or rising earnings justify more than one good year.
- Low owner dependence. If customers buy because of the owner personally, a buyer pays less or asks the seller to stay on.
- Spread-out customers. One client providing a large share of sales is a risk buyers price in.
- Recurring revenue, documented processes and clean books.
Because value is earnings times a multiple, a half-turn on the multiple matters as much as the earnings themselves:
| Multiple range | Low | Midpoint | High |
|---|---|---|---|
| 1.5× to 2.5× | $412,500 | $550,000 | $687,500 |
| 2.0× to 3.0× (example) | $550,000 | $687,500 | $825,000 |
| 2.5× to 3.5× | $687,500 | $825,000 | $962,500 |
Add-backs: where valuations go wrong
Every dollar added back to earnings is worth a multiple of itself in the price, so add-backs attract the most scrutiny in a sale. In the example they total $135,000. Without the $15,000 of one-time and personal expenses, the midpoint would fall to $650,000.
A buyer or lender will accept an add-back only if it is documented and would genuinely disappear under new ownership. A family member on payroll who does real work is not an add-back; their replacement must be paid. Recurring “one-time” costs are not one-time. If the owner’s salary is below what a manager would cost, an SDE buyer will notice that the job is underpaid, and an EBITDA buyer will deduct a market salary.
Comparing the three methods
Each method answers a different question. Earnings multiples ask what the profit stream is worth to a buyer. Revenue multiples ask what similar businesses sell for per dollar of sales, which works only when margins are similar to competitors’. The asset-based method asks what the business would fetch if it were broken up.
For a profitable company, the asset value is a floor and the earnings value is the anchor. When assets outweigh earnings, the order flips: with $900,000 of net assets in the comparison tab, the earnings midpoint of $687,500 falls short of the net assets, so the business is worth more for what it owns than for what it earns.
What this calculator does not include
- Working capital and debt in the deal. Many small-business sales are asset sales with the seller keeping cash and paying off debt, and inventory or receivables may be priced separately. Check what the price includes.
- Deal terms. Seller financing, earn-outs and the split between asset classes for tax change what the seller actually receives.
- Taxes on the sale for either side.
- Market data. The multiples you enter are assumptions. Recent sales of comparable businesses, a broker’s opinion or a formal appraisal are the sources for real figures.
- Liquidation discounts. The asset tab uses the values you enter; a forced sale usually fetches less.
For larger companies with predictable cash flow, a discounted cash flow model values the business from first principles rather than from multiples, and makes a useful third view alongside this one.