Business Valuation Calculator
Earnings multiples plus a simple DCF, for a realistic value range.
Estimated value range (multiple vs DCF)
Estimates for planning only, not financial advice.
A business is worth what a buyer will pay for its future cash flows, and two methods estimate that from different angles. The earnings-multiple method multiplies current profit by a market multiple: $200,000 of seller\'s discretionary earnings at a 3.5 multiple equals $700,000. The discounted cash flow method projects future cash flows and discounts them to today. This calculator runs both, because the truth usually sits between the market\'s verdict and your own forecast.
How to Use This Calculator
Enter annual earnings as SDE for owner-operated businesses under roughly $2 million in value, or EBITDA for larger ones. SDE is net profit plus your salary, perks, and add-backs; be honest, because inflated earnings produce a fantasy valuation. Pick a multiple from the guide below, then set DCF inputs: expected growth, a discount rate reflecting risk (15 to 25 percent for most small businesses), projection years, and terminal growth. Compare the two values and treat the overlap as your realistic range.
Compute true SDE or EBITDA with honest add-backs. Strip out one-time windfalls and personal expenses run through the business.
Choose a multiple from the risk guide below. Recurring revenue and owner-independence push it up; concentration and decline push it down.
Set DCF assumptions conservatively, then read both values. If they are far apart, your growth forecast and the market disagree, and the market is usually right.
The Two Valuation Formulas
The multiple method is fast and market-grounded: it bakes in what buyers actually pay, including risk and growth expectations, in one number. The DCF is explicit about its assumptions, which is both its strength and its weakness: you can see exactly which forecast drives the value, but small tweaks to growth or the discount rate swing the result dramatically. Professionals weight both. Use the multiple as your anchor and the DCF as your sensitivity check: move growth down 2 points and the discount rate up 3, and see if the deal still makes sense.
Worked Example
A marketing agency generates $200,000 in SDE, growing 5 percent a year, with recurring retainer revenue and an owner working 20 hours a week. At a 3.5 multiple, the market method says $700,000. The DCF at 18 percent discount over 5 years with 2 percent terminal growth: year cash flows of $210,000, $220,500, $231,525, $243,101, $255,256 discounted to present value sum to about $697,000, plus a terminal value of roughly $2.0 million discounted back about $874,000, for a DCF total near $1.57 million. The wide gap flags optimism: either the growth forecast is rosy or the 18 percent discount understates this business\'s risk. A seller quoting $1.5 million off the DCF will meet buyers anchored at $700,000, and the negotiation lands between.
Choosing Your Multiple
| Business profile | Typical SDE multiple |
|---|---|
| Declining, owner-dependent, concentrated customers | 1.5 to 2.5 |
| Stable, modest growth, some systems | 2.5 to 3.5 |
| Growing, recurring revenue, runs without owner | 3.5 to 5 |
| Strong growth, diversified, management in place | 5 to 6+ |
Every step up the table is earned, not claimed. Recurring revenue contracts, documented processes, a second-in-command, and customer diversification each add real multiple points because each removes a risk the buyer would otherwise price in. If you are 3 to 5 years from selling, those are your projects: each year of de-risking compounds into the eventual price. For related math, our IRR calculator evaluates the buyer\'s return at your asking price, our present value calculator discounts any cash flow stream, and our business loan calculator sizes what a buyer can actually borrow against the cash flow.
Estimates for planning only, not financial advice.
Frequently Asked Questions
How do you value a small business?
Three approaches dominate: earnings multiples (value = profit x a multiple), discounted cash flow (present value of future cash flows), and asset value (what the assets would fetch). For profitable small businesses, earnings multiples are the standard because buyers pay for cash flow. This calculator runs both an earnings-multiple valuation and a simplified DCF so you can compare.
What multiple do small businesses sell for?
Most small businesses sell for 2 to 4 times seller's discretionary earnings (SDE), with strong, growing, low-risk businesses reaching 4 to 6 times. The multiple reflects risk and growth: recurring revenue, diversified customers, and a business that runs without the owner push it up; customer concentration, declining sales, and owner dependence push it down. Size matters too: larger businesses command higher multiples.
What is seller's discretionary earnings (SDE)?
SDE is the total financial benefit one owner-operator gets: net profit plus the owner's salary, plus perks, plus non-recurring expenses, plus interest, taxes, depreciation, and amortization. It answers "what does owning this business actually pay me." Buyers of businesses under about $2 million price off SDE; larger deals use EBITDA. Use SDE for Main Street businesses, EBITDA for bigger ones.
How does discounted cash flow valuation work?
DCF projects the business's cash flows for several years, then discounts them back to today at a rate reflecting risk. Money in the future is worth less than money now, so a dollar of profit in year 5 might be worth 60 cents today at a 10 percent discount rate. Add a terminal value for everything beyond the projection period. DCF is theoretically the purest method, but it is sensitive: small changes in growth or discount rate swing the answer a lot.
What discount rate should I use in a DCF?
For a small private business, 15 to 25 percent is typical, far above public-company cost of capital, because small businesses are riskier and illiquid. Use the low end for stable businesses with recurring revenue and the high end for volatile or owner-dependent ones. If your DCF value collapses when you move from 15 to 20 percent, the valuation is fragile and you should weight the multiple method more.
Why is my DCF value different from my multiple value?
Because they measure different things. Multiples reflect what buyers actually pay for similar businesses today, grounded in market reality. DCF reflects what your specific cash flows are worth under your assumptions, grounded in theory. When they disagree, ask why: is your growth forecast rosier than the market believes, or is the market multiple depressed by a bad year for deals? Sophisticated sellers present both and negotiate in the overlap.
How much does owner dependence reduce value?
A lot, often a full multiple point or more. A business that stops when the owner stops is buying a job, not a company, and buyers discount it heavily. Documented systems, a management team, and customer relationships that survive the owner all raise the multiple. If you plan to sell in 3 to 5 years, making yourself operationally unnecessary is the highest-ROI project available.
Do assets like inventory and equipment add to the multiple value?
Usually the multiple already assumes a normal level of working capital and assets needed to run the business, so do not simply add them on top. Excess cash, real estate not needed for operations, and personal assets are added separately. Inventory above normal operating levels gets adjusted in the deal structure. The clean way to think: multiple values the operating business; everything non-operating is added after.
What is a good rule of thumb for a quick valuation?
For a profitable small service business: 3 times SDE, adjusted up or down a point for growth, risk, and transferability. A $200,000 SDE business with steady growth and systems is roughly a $600,000 to $800,000 business. That is a conversation starter, not an appraisal: real deals adjust for deal structure, seller financing, earnouts, and working capital, which can move the effective price 20 percent either way.
Should I get a professional business appraisal?
For planning and curiosity, a calculator is fine. For an actual sale, divorce, partnership buyout, or tax event, hire a credentialed appraiser. They bring comparable transaction data you cannot access, defend the number to the other side and their advisors, and their report carries weight with the IRS and courts that a web calculator never will. Expect to pay a few thousand dollars for a formal valuation of a small business.