Business valuation calculator

Most small companies trade on a multiple of earnings, adjusted for the things that make the earnings more or less reliable in someone else's hands. The calculator starts from adjusted earnings, applies a range of multiples, compounds the discounts against each other, then moves from enterprise value to equity value by adding cash and subtracting debt.

The discount fields are where owners are usually surprised. A company that depends on the owner, or on one large customer, does not fetch the multiple the industry chart shows. Those two inputs frequently move the answer more than the multiple itself does.

Seller's discretionary earnings, SDE, is the profit available to one owner-operator: pre-tax profit plus that owner's total salary and benefits, interest, depreciation and amortisation, and discretionary or one-time expenses. EBITDA starts from the same profit but assumes a buyer will have to pay a manager a market salary to do the owner's job, so it is lower than SDE for the same business. Small owner-run companies are usually priced on SDE, because the buyer is often the person who will run it. Larger companies with a management team are priced on EBITDA. I go further into the difference in my article on why businesses under a million are priced on SDE, linked beside this section.

Multiples rise with size and with how transferable the earnings are. Owner-run businesses under about $1 million of SDE commonly sell for about two to three times SDE, sometimes four. Companies with roughly $1 million to $5 million of EBITDA and some management depth more often trade in the four to six times range used as the default here, and larger companies with recurring revenue can go higher. These are broad market ranges, not rules; your industry, your margins and the quality of your books decide where in them you land.

Three methods are used in practice. The market approach, which this calculator uses, applies multiples from comparable sales. The income approach discounts or capitalises the cash flows a buyer expects. The asset approach adds up what the assets would fetch, less the liabilities, and sets a floor for asset-heavy companies or ones with thin profits. A formal appraisal usually runs more than one and reconciles them.

What raises a multiple: recurring or contracted revenue, steady growth, healthy margins, a management team that runs the business without you, customers spread across many accounts, documented processes, and clean, reviewed financial statements. What lowers it: dependence on the owner, one customer above roughly a fifth of revenue, lumpy or project-based sales, deferred equipment spending, key staff without agreements, and add-backs that cannot be proved.

A calculator is enough to frame the question. A formal valuation by a credentialed appraiser is needed when the number has to stand up to someone else: a sale or purchase, gifting shares or an estate tax return, funding or triggering a buy-sell agreement, a divorce, bringing in a partner, or a dispute. If the goal is to raise the number before a sale, the exit readiness assessment scores the drivers behind it.