Business Valuation Calculator

Business valuation estimates what a company is worth based on its financial performance, growth trajectory, and market conditions. The three most common approaches are revenue multiples, earnings multiples, and discounted cash flow (DCF). Each method answers a different question. Revenue multiples value growth potential — useful for high-growth companies that may not yet be profitable. Earnings multiples (typically applied to EBITDA or SDE) value current profitability — the standard for mature businesses. DCF values the present worth of future cash flows — the most theoretically sound but most sensitive to assumptions.

Revenue multiples work by multiplying annual revenue by a factor that reflects the company's growth rate, market size, and competitive position. A SaaS company growing 100% year-over-year might command 15-25x revenue, while a professional services firm growing 10% might get 1-2x. The multiple is not arbitrary — it reflects what buyers believe about future earnings potential. High multiples require proof that revenue is recurring, growing, and likely to become highly profitable at scale.

Earnings multiples are the workhorse of small and mid-market business valuation. For businesses under $5M in revenue, Seller's Discretionary Earnings (SDE) is the standard: Net Profit + Owner Salary + Owner Benefits + Non-recurring Expenses. For larger businesses, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is used. The multiple applied depends on size, growth, industry, and risk. A local services business might sell for 2-3x SDE, while a mid-market software company could sell for 8-15x EBITDA.

Discounted Cash Flow (DCF) projects future free cash flows (typically 5-10 years) and discounts them back to present value using a discount rate that reflects risk. The discount rate for a small business is typically 20-35% (reflecting high risk), while a large stable company might use 8-12%. DCF is powerful because it forces explicit assumptions about growth, margins, and risk — but small changes in the discount rate or terminal growth rate can swing the valuation by 50% or more, making it easy to manipulate.

Start by cleaning your financials. Separate personal from business expenses, document all legitimate add-backs with supporting evidence, and prepare at least three years of consistent financial statements. Buyers and valuation professionals will look for trends — consistent revenue growth, stable or improving margins, and predictable cash flow. Erratic financials signal risk and suppress multiples.

Reduce key-person dependency before seeking a valuation. If the business cannot function without the owner for 30 days, buyers see a job, not a business. Document processes, delegate client relationships, build a management layer, and demonstrate that revenue continues when you step back. Businesses with transferable systems and teams command 20-40% higher multiples than owner-dependent operations.

Get multiple valuation perspectives. A single method gives you a single number; using revenue multiples, earnings multiples, and DCF together gives you a range. Where the methods agree, you have confidence. Where they diverge, you have important questions to answer. For any transaction above $500K, engage a professional appraiser or M&A advisor who specializes in your industry — the cost of a formal valuation (typically $5,000-$25,000) is trivial compared to the risk of mispricing.