Business Valuation Calculator: Estimate Business

Use this business valuation calculator to help you to identify how much your business could be worth. If you run a small business, start up, or established company, or are looking to buy/sell your business within the US, this calculator will give you a great starting point.

What is business valuation?

Business valuation helps you to determine how much a business could be worth. Businesses can be valued based on their profitability, cash-flow, industry, growth potential, customer base and risk. Businesses that have good profitability, regular income streams and good growth potential could be worth more than those with irregular profits and high debt.

Valuation Method

Not every business will use the same method. Some will be valued using multiples of their yearly earnings. Others might be valued based on revenue, assets, or projected cash-flow. Smaller businesses are often valued using the seller’s discretionary earnings valuation method (SDE) whilst larger businesses will often be looked at using the earnings before interest, taxes, depreciation and amortisation (EBITDA).

Using the business valuation calculator

Using the calculator you can input your relevant financial details to identify what your business could be worth. This can be used to help with your financial planning, preparation for negotiations, comparing buying opportunities and to understand how increasing your profitability could affect your company.

Please note this is just an estimate.

How to use the business valuation calculator

To get an estimate of how much your business is worth complete the following steps:

• Input your yearly revenue.
• Input your yearly earnings.
• Select a valuation multiple.
• Input any assets and liabilities.
• Click calculate.
• Review your estimate.

If you are unsure which multiple to use look into similar businesses in your industry or speak to a qualified business valuation professional. Don’t just choose a higher valuation multiple.

To get the most accurate estimate possible ensure you use accurate financial documents. Ensure your revenue and profit figures are for the same period.

Business valuation calculator formula

Depending on the method you choose to use the following formula will be used.

1. Earnings-Based Valuation

Business Valuation = Yearly Earnings x Valuation Multiple

For example if your business has $200,000 of yearly EBITDA and uses a 4x EBITDA multiple:

Business valuation = $200,000 x 4

Estimated business valuation = $800,000

2. Revenue-Based Valuation

Business Valuation = Yearly revenue x revenue multiple

Whilst this can be helpful for some industries it does not demonstrate whether the business is profitable.

3. Asset-Based Valuation

Net asset value = Total assets – Total liabilities

This gives you an estimate of the net asset value. You may need to adjust the value of your assets.

These formulas shouldn’t be mixed together. If you choose to use an earnings multiple you may be calculating an enterprise value and if you are using an asset-based valuation you will be calculating a net asset value. Ensure you understand what you are calculating based on the method and figures you have.

Example

You are a small business owner within the US and have $1,000,000 in annual revenue and $200,000 of yearly EBITDA. You have carried out some research within your industry and have decided to use an example 4x EBITDA multiple.

Your estimated valuation would be:

Revenue $1,000,000

EBITDA $200,000

EBITDA Multiple 4x

Estimated enterprise value $800,000

Formula

Business Valuation = Yearly EBITDA x EBITDA Multiple

Business Valuation = $200,000 x 4

Estimated enterprise value = $800,000

This indicates your business has an enterprise value of $800,000 based on the assumptions made. However, this does not mean it will automatically sell for this price. The final selling price can depend on the debt, cash, working capital, terms and buyer interest.

If your company has $100,000 in debt and $50,000 of excess cash you could simply work out the equity value:

Equity Value = Enterprise value – Debt + Cash

Equity Value = $800,000 − $100,000 + $50,000

Equity Value = $750,000

This assumes the cash is available to add to the transaction.

Understanding your results

Your results from the business valuation calculator indicate:

Business valuation – the estimated value of your business based on the method selected.

Valuation multiple – the multiple used against your revenue/earnings.

Enterprise value – the value of your business operations.

Equity value – estimated value of your business to the owners considering relevant debt, cash and adjustments.

Net asset value – the difference between the value of your assets and liabilities.

These terms cannot be used interchangeably. Check what type of value your calculator is providing.

As a general rule, the higher the valuation multiple the higher your estimated value will be. However, you should have reasons for choosing a higher multiple such as high profitability, regular income streams, competitive advantage and sustainable growth.

Factors to consider

There are several factors to consider when determining how much your business could be worth.

Revenue/profitability – having high sales and regular profits can increase your valuation. However, having high sales but not sustainable profits may not increase your valuation.

Industry – Different industries will have different valuations. Look into similar transactions to help you find a reasonable multiple.

Growth potential – Having regular customers, growing markets and scalable operations could increase your valuation.

Risk – High debt, decreasing sales, irregular cashflow and reliance on a few customers can cause buyers to lose confidence.

Assets – Having equipment, stock, property, intellectual property and other assets could add value.

Owner dependency – If your business is very owner dependent this may not be as attractive to buyers as having good systems in place and experienced management.

Customer base/brand – Having loyal customers, regular contracts, a well known brand and defendable market position could increase your valuation.

Benefits and uses

Using a business valuation calculator can help business owners and investors make more informed financial decisions.

Selling your business – Get an estimate of what your business could be worth.

Buying a business – Determine if the asking price looks reasonable.

Planning – Understand how increasing your profitability could affect your company.

Investors – Get an initial estimate to discuss with investors.

Succession planning – Help you begin to think about what your company could be worth.

Comparisons – Understand what your business could be worth in different scenarios.

This calculator can be helpful for getting an initial insight. When making large transactions ensure you seek professional advice and carry out detailed financial due diligence.

Accuracy, assumptions and limitations

This calculator will give an estimate. The accuracy of the results will depend on the quality of your financial information, valuation method and appropriate multiple.

A simple earnings multiple may not take into account one off costs, owner adjustments, working capital needs, concentration of customers, intellectual property and future cashflow. Using a revenue multiple can be misleading if the businesses have significantly different profit margins.

It is important to understand the difference between enterprise and equity value. If there is debt outstanding or lots of cash within the company this can impact the results. Depending on the structure of the transaction different results can be achieved.

If you require an official valuation for a merger, acquisition, shareholder disagreement, estate planning or tax issues, you should consider using a qualified business appraiser, CPA or financial advisor. This calculator can be used to help with initial planning.

FAQs

What is a business valuation calculator?

A business valuation calculator helps you to determine how much your company could be worth based on financial information including yearly revenue, earnings, assets, liabilities and valuation multiples.

How do I calculate my business value?

A common method is to multiply your yearly earnings by the appropriate multiple. For example if your business earns $150,000 in annual EBITDA with a 4× multiple would have an estimated enterprise value of $600,000.

What is a good multiple for a small business?

There isn’t a universal multiple for all small businesses. The right multiple will depend on your industry, profitability, growth, risk, size and similar transactions. Research the relevant market data.

Should I value my business based on revenue or profit?

Both can be useful. However, using an earnings based valuation often gives a better indication of profitability. Revenue based valuations can be appropriate in some industries but do not take into account the costs of running the business.

What is the difference between enterprise value and equity value?

Enterprise value refers to the value of your business operations. Equity value refers to the value of your business to the owners. A simple calculation can be used to work out the equity value by adjusting the enterprise value by the debt and cash. Other adjustments can be made depending on the transaction.

Can I use this to determine my selling price?

You can use this to get an initial estimate of what your business could be worth. However, the actual selling price will depend on buyer interest, due diligence, terms of the transaction, financing and other factors.

How often should I calculate my business valuation?

You may want to calculate your business valuation once a year and when there are any major changes. Major changes could include increased revenue, new investment, buying opportunity or intention to sell. Getting regular estimates can help you understand how your business is performing and if you are meeting your long term financial goals.