Value Of My Business

A business valuation is not a single number — it is a negotiating range built from three different lenses. The revenue multiple asks: given your industry, what does the market pay for a dollar of sales? The earnings multiple asks: what would a buyer pay for the profit that lands in their pocket after expenses? The asset method asks: if you wound everything down and sold the parts, what is the floor? Every serious transaction uses at least two of these methods, and the gap between them is where negotiation happens.

The multiples used here reflect small-to-mid market transactions — businesses selling for under $10M — where buyers are typically owner-operators or small private equity firms. Enterprise-level acquisitions use different tools (discounted cash flow, precedent transactions) that require projections, not trailing data. This tool is not built for those situations.

The most commonly misunderstood input is net profit. For small business sales, standard accounting net income undervalues the business because the owner's salary — often set to minimize taxes — is counted as an expense. Adding that salary back gives seller discretionary earnings, which is what buyers actually pay a multiple on. A business reporting $80K net income with a $150K owner salary is actually generating $230K in owner benefit, which could justify a very different valuation.

Use this tool when you are exploring a sale, preparing for a partner buyout, negotiating an investment, or simply want a directional read on whether your business is worth what you think it is. It is also useful as an annual sanity check — running the numbers once a year helps you track whether operational decisions are building or eroding value.

Do not rely on this estimate as a final price in an actual transaction. Once you are in active sale negotiations, you need a business broker's formal opinion of value, or a certified business appraiser if the deal is large enough to require a bank loan or attract institutional buyers. Lenders require third-party appraisals for SBA loans above certain thresholds, and those appraisals use methods this tool cannot replicate.

This tool is also less reliable for businesses under two years old, businesses with erratic year-to-year earnings, or businesses in niche industries with very few comparable transactions. In those cases, the multiples are less statistically grounded and the range you get here should be treated as rough guidance only.

The most common mistake is using taxable net income instead of seller discretionary earnings. Business owners naturally minimize taxable income, which means the profit on the tax return is not the profit a buyer cares about. Failing to add back owner salary, owner benefits, and one-time expenses routinely cuts the earnings-based estimate in half — and makes the business look less attractive than it actually is.

A second mistake is treating the asset-based estimate as the real valuation for a profitable business. Asset value is a floor, not a price. If your business earns $300K per year, a buyer is not going to pay only $200K just because your equipment is worth that on paper. The earnings and revenue methods almost always dominate for going-concern businesses. The exception is asset-heavy, low-margin businesses where earnings barely cover operating costs.

A third mistake is anchoring to one industry multiple and ignoring the range. Multiples within an industry vary based on growth rate, client concentration, contract versus project revenue, and owner involvement. A professional services firm with recurring retainer contracts and two senior managers in place might justify 1.5x revenue. One that runs on the owner's personal relationships and handshake deals might struggle to get 0.6x. The multiple is the judgment call — this tool gives you the brackets.

Revenue-based estimate = Annual Revenue x Industry Revenue Multiple (low and high). For professional services, the range is roughly 0.7x to 1.3x. For SaaS, it is 3x to 6x. The multiple reflects how much recurring, predictable revenue exists in that sector.

Earnings-based estimate = Net Profit (with owner salary added back) x Industry Earnings Multiple. For most small businesses, earnings multiples run from 2x to 5x. Higher multiples apply when earnings are stable, the business runs without the owner, and financials are audited or reviewed. Lower multiples apply when the owner is the business, revenue is concentrated in one client, or earnings fluctuate year to year.

Asset-based estimate = Total Assets - Total Liabilities. This is straightforward book-value equity. It is most useful as a floor: no rational buyer pays less than liquidation value for a profitable business, and no seller should accept less unless the business is distressed. In asset-heavy industries like manufacturing, this figure sometimes exceeds the earnings-based estimate, which tells you the business is not earning an adequate return on its asset base.

The hidden assumption in any multiple-based valuation is that the earnings or revenue are sustainable and transferable. A business that earns $400K per year because the founder has unique technical skills, a personal brand, or relationships that do not transfer to a new owner is not worth 3x $400K — it is worth whatever the buyer thinks they can retain after the transition. Smart buyers apply a 'key person discount' of 20% to 50% when the owner is the business. This tool cannot measure that discount, but knowing it exists helps you build the case for why your multiple deserves the top of the range.