Business Valuation Calculator

Understand what your business is worth using professional valuation methods used by M&A advisors, private equity firms, and business brokers.

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Why Business Valuation Matters

Whether you’re:

• Selling your business - Know your baseline negotiation position
• Raising capital - Understand how much equity to offer investors
• Planning an exit - Set financial goals for the next 3-5 years
• Buying a business - Assess if the asking price is fair
• Estate planning - Value assets for tax and succession purposes

Knowing your business value helps you make strategic decisions.

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The Four Valuation Methods

1. Revenue Multiple Valuation

How it works: Multiply annual revenue by an industry-standard multiple.

Business Value = Annual Revenue × Industry Multiple

Example:

• SaaS company with $5M revenue
• Industry multiple: 5-15x (we use 8x mid-point)
• Valuation: $5M × 8 = **$40M**

When to use:

• ✅ SaaS and subscription businesses
• ✅ High-growth companies (even if unprofitable)
• ✅ Recurring revenue models
• ✅ Quick market comparisons
• ❌ Mature, slow-growth businesses
• ❌ One-time project revenue

Industry Multiples:

Industry	Low	Mid	High
SaaS	5x	8x	15x
E-commerce	0.5x	1.5x	3x
Professional Services	0.5x	1x	2x
Manufacturing	0.3x	0.75x	1.5x
Retail	0.2x	0.5x	1x

What influences your multiple:

• Growth rate - 50%+ growth can command premium multiples
• Churn rate - Less than 5% monthly churn is excellent (SaaS)
• Gross margins - 70%+ is strong
• Customer concentration - No single customer over 10% revenue
• Founder dependence - Business should run without you

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2. EBITDA Multiple Valuation

How it works: Multiply EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) by an industry multiple.

Business Value = EBITDA × Industry Multiple

Example:

• E-commerce business with $10M revenue
• EBITDA margin: 15% = $1.5M EBITDA
• Industry multiple: 6x
• Valuation: $1.5M × 6 = **$9M**

When to use:

• ✅ Profitable, established businesses
• ✅ Most common method for small-mid businesses ($1M-$50M)
• ✅ Comparing similar businesses
• ✅ Capital-intensive industries
• ❌ Unprofitable companies
• ❌ Negative EBITDA

Why EBITDA?

• Removes capital structure differences (interest)
• Removes tax jurisdiction differences
• Removes depreciation accounting choices
• Shows true operating profitability

Industry Multiples:

Industry	Low	Mid	High
SaaS	8x	12x	20x
E-commerce	4x	6x	10x
Services	3x	5x	8x
Manufacturing	4x	6x	9x
Retail	3x	5x	7x

Add-backs to EBITDA:

• Owner’s excessive salary (above market rate)
• One-time expenses (lawsuit, relocation)
• Personal expenses run through business
• Non-recurring costs

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3. Discounted Cash Flow (DCF)

How it works: Project future cash flows, discount them to present value, add terminal value.

DCF = Σ (Cash Flow_t / (1 + WACC)^t) + Terminal Value

Steps:

1. Project 5-10 years of cash flows based on revenue growth
2. Discount each year’s cash flow to present value using WACC (Weighted Average Cost of Capital)
3. Calculate terminal value - perpetual value beyond projection period
4. Sum everything to get total business value

Example:

• Year 1 cash flow: $1M → PV =$870k (15% discount)
• Year 2 cash flow: $1.2M → PV =$907k
• Year 3 cash flow: $1.44M → PV =$946k
• … continue for 5 years
• Terminal value: $20M → PV =$9.9M
• Total DCF: $15M

When to use:

• ✅ Stable, predictable businesses
• ✅ When you have reliable projections
• ✅ Most “accurate” method (if assumptions are correct)
• ✅ Mature companies with history
• ❌ Startups with no track record
• ❌ Highly volatile industries

Key Assumptions:

Discount Rate (WACC):

• Represents risk-adjusted return rate
• Small business: 15-25%
• Established business: 10-15%
• Mature company: 8-12%
• Higher risk = higher discount rate = lower valuation

Terminal Growth Rate:

• Long-term steady-state growth
• Usually 2-4% (GDP growth rate)
• Can’t exceed long-term economic growth
• Be conservative here

DCF is sensitive to assumptions - small changes in discount rate or terminal growth can swing valuation 30%+.

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4. Asset-Based Valuation

How it works: Sum the fair market value of all assets.

Business Value = Tangible Assets + Intangible Assets - Liabilities

Example:

• Equipment: $500k
• Inventory: $300k
• Real estate: $1M
• Brand value: $500k
• Customer list: $200k
• Total: $2.5M

When to use:

• ✅ Asset-heavy businesses (manufacturing, real estate)
• ✅ Liquidation scenarios
• ✅ As a “floor” value / sanity check
• ❌ Service businesses (few hard assets)
• ❌ High-growth tech companies
• ❌ IP-heavy businesses

Tangible Assets:

• Real estate (use appraised value)
• Equipment and machinery (depreciated value)
• Inventory (liquidation value ~50-70% of book)
• Vehicles
• Cash and receivables

Intangible Assets:

• Brand value
• Patents and trademarks
• Customer lists and contracts
• Proprietary technology
• Trained workforce (in some cases)

Important: Asset-based valuation usually produces the lowest number because it ignores future earning potential.

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Comparing the Methods

Which Method to Trust?

For SaaS/Subscription Businesses:

• Primary: Revenue Multiple (60%)
• Secondary: DCF (30%)
• Sanity check: EBITDA Multiple (10%)

For Profitable, Mature Businesses:

• Primary: EBITDA Multiple (50%)
• Secondary: DCF (40%)
• Floor: Asset-Based (10%)

For High-Growth, Unprofitable:

• Primary: Revenue Multiple (70%)
• Secondary: DCF (30%)
• Ignore: EBITDA (negative), Asset-Based

For Manufacturing/Asset-Heavy:

• Primary: EBITDA Multiple (40%)
• Secondary: Asset-Based (40%)
• Tertiary: DCF (20%)

For Stable Cash Flow Businesses:

• Primary: DCF (60%)
• Secondary: EBITDA Multiple (30%)
• Check: Revenue Multiple (10%)

Real Example: Valuing a SaaS Company

Company Profile:

• Annual Revenue: $5M
• Revenue Growth: 40% YoY
• EBITDA: $1M (20% margin)
• Customers: 500 (no concentration)
• Churn: 3% monthly
• Assets: Minimal (~$200k)

Valuation Methods:

1. Revenue Multiple: $5M × 10 = **$50M**

   • Using 10x (mid-high for 40% growth SaaS)

2. EBITDA Multiple: $1M × 12 = **$12M**

   • Using 12x for SaaS EBITDA

3. DCF: $35M

   • 5-year projection with 40% → 25% → 15% growth taper
   • 15% discount rate
   • 3% terminal growth

4. Asset-Based: $200k

   • Clearly not useful for SaaS

Conclusion: This company is likely worth $30-45M, weighting Revenue Multiple and DCF most heavily. EBITDA multiple seems low because high-growth SaaS trades on revenue, not current profit.

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Factors That Increase Value

Revenue Quality

• Recurring revenue - Subscriptions worth 3-5x more than project revenue
• Contracts - Long-term contracts (2-3 years) add stability
• Diversity - No customer over 10% of revenue is ideal

Growth Trajectory

• 40%+ growth - Commands premium multiples
• Profitable growth - Growing without burning cash
• Product-market fit - Clear, repeatable sales process

Margins & Efficiency

• Gross margins - SaaS: 70%+, E-commerce: 30%+, Services: 40%+
• CAC payback - Under 12 months ideal
• LTV/CAC ratio - 3:1 or higher

Business Model

• Owner independence - Business runs without founder
• Team in place - Key employees with equity/incentives
• Systems & processes - Documented, repeatable
• IP/Moat - Defensible competitive advantage

Market Position

• Market leader - #1 or #2 in niche
• Brand recognition - Organic traffic, word-of-mouth
• Network effects - Gets stronger with more users

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Factors That Decrease Value

Risk Factors

• Customer concentration - 1 customer = 30%+ revenue (huge risk)
• Founder dependence - Only founder can close deals
• Single channel - All revenue from one marketing channel
• Legal issues - Lawsuits, IP disputes, compliance problems

Financial Red Flags

• Declining revenue - Negative growth requires deep discount
• Negative EBITDA - Unprofitable without clear path to profit
• High churn - Over 5% monthly for SaaS is concerning
• Lumpy revenue - Unpredictable, project-based

Operational Issues

• No documentation - Processes in founder’s head only
• Tech debt - Code unmaintainable, requires rewrite
• Key person risk - Critical employee(s) could leave
• Supplier dependence - Single supplier for critical input

Market Concerns

• Declining market - Industry shrinking or being disrupted
• Low barriers to entry - Easy for competitors to replicate
• Regulatory risk - Potential law changes threaten business

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The Valuation Process

Step 1: Gather Financial Data

• 3 years of financial statements (P&L, balance sheet, cash flow)
• Customer metrics (count, churn, CAC, LTV)
• Revenue breakdown (by product, channel, customer)
• Adjust for owner salary, one-time expenses

Step 2: Choose Appropriate Methods

• Consider your business type and stage
• Use 2-3 methods (not just one)
• Weight methods based on applicability

Step 3: Research Comparables

• Find similar businesses that sold recently
• Look at public company multiples in your industry
• Adjust for size, growth, and profitability differences

Step 4: Make Realistic Assumptions

• Be conservative on growth projections
• Use market-standard multiples, not aspirational
• Sanity check: does the value make sense?

Step 5: Create a Range

• Low case: Conservative multiples, cautious projections
• Base case: Market standard multiples
• High case: Premium multiples (strategic buyer with synergies)

Step 6: Document Everything

• Show your work and assumptions
• Potential buyers will scrutinize every number
• Be prepared to defend your valuation

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Buyer’s Perspective

Strategic vs. Financial Buyer

Financial Buyer (Private Equity, Investor):

• Looking for ROI (usually 3-5x in 5 years)
• Will use EBITDA multiple or DCF
• Typically pays 4-8x EBITDA for small businesses
• Wants clean, profitable businesses

Strategic Buyer (Competitor, Larger Company):

• Looking for synergies (cost savings, cross-sell opportunities)
• Will pay premium (20-50% above financial buyers)
• Cares about revenue multiple and market share
• Can afford to pay for growth, even if unprofitable

What Buyers Look For

1. Clean books - Audited or reviewed financials
2. Growth story - Clear path to 2x in 3-5 years
3. Management team - Doesn’t require founder post-sale
4. Systems - Documented processes, good tech stack
5. Moat - Something defensible (brand, IP, network effects)

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When to Get a Professional Valuation

You probably need a professional if:

• Business is worth over $5M (hire M&A advisor)
• Selling to outside buyers (not family/employees)
• Raising significant capital ($1M+)
• Legal/tax purposes (estate planning, divorce)
• Partner disputes or buyouts

Cost: $5,000 -$50,000+ depending on business size and complexity.

Benefit: Defensible, third-party valuation and expertise in maximizing value.

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Common Mistakes

1. Using Only One Method

❌ “My SaaS is worth $50M because revenue is$5M and SaaS is 10x”

✅ Use multiple methods and weight them. Maybe it’s really $30-40M after factoring in churn and margins.

2. Ignoring Market Conditions

❌ “SaaS multiples were 15x in 2021, so that’s what I’ll use”

✅ Multiples change with market conditions. Research current comps.

3. Overvaluing Intangibles

❌ “My brand is worth $10M” (with no supporting data)

✅ Intangibles are hard to value. Be conservative without third-party appraisal.

4. Unrealistic Growth Projections

❌ “We’ll grow 100% YoY for next 5 years”

✅ Use realistic growth rates based on historical data and market size.

5. Not Adjusting EBITDA

❌ Using book EBITDA without adding back owner salary

✅ Adjust for owner salary above market, personal expenses, one-time costs.

6. Assuming Current Multiple Will Hold

❌ “Public SaaS trades at 12x, so my small SaaS is worth 12x”

✅ Small businesses trade at significant discount to public companies (30-50% less).

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Example Valuations Across Industries

Example 1: Local Service Business

Profile:

• Plumbing company, 10 employees
• Revenue: $2M/year, stable
• EBITDA: $400k (20% margin)
• Owner works in business full-time
• Strong local brand

Valuation:

• Revenue Multiple: $2M × 1x = **$2M**
• EBITDA Multiple: $400k × 4x = **$1.6M**
• DCF: $1.8M
• Asset-Based: $300k (trucks, tools)

Likely Value: $1.5-2M (2.5-3.5x EBITDA after adjusting for owner salary)

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Example 2: E-commerce Brand

Profile:

• DTC consumer brand, 2 years old
• Revenue: $3M/year, growing 50% YoY
• EBITDA: $300k (10% margin)
• Sold via Shopify + Amazon
• No physical inventory (dropshipping)

Valuation:

• Revenue Multiple: $3M × 1.5x = **$4.5M**
• EBITDA Multiple: $300k × 6x = **$1.8M**
• DCF: $3.5M
• Asset-Based: $200k

Likely Value: $3-4M (1-1.3x revenue, given growth but low margins)

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Example 3: SaaS Startup

Profile:

• B2B SaaS, 3 years old
• Revenue: $4M ARR, growing 80% YoY
• EBITDA: -$500k (burning cash to grow)
• 200 customers, 4% monthly churn
• Strong product-market fit

Valuation:

• Revenue Multiple: $4M × 8-12x = **$32-48M**
• EBITDA Multiple: N/A (negative EBITDA)
• DCF: $25M (heavy discount for risk)
• Asset-Based: $500k

Likely Value: $25-40M (heavily weighted to revenue multiple for high-growth SaaS)

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Valuation vs. Selling Price

Important: Valuation is your starting point, not your final selling price.

Factors that affect final price:

• Negotiation skills - Can swing price 10-20%
• Multiple buyers - Auction creates competition
• Seller financing - Increases price but you carry risk
• Earn-out - Higher total price, but contingent on future performance
• Market timing - Sell when your industry is hot
• Buyer urgency - Strategic buyer with timeline will pay more

Typical structure for small business sale:

• 60-80% cash at close
• 10-20% seller note (1-3 years)
• 10-20% earn-out (performance-based)

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Key Takeaways

1. Use multiple methods - Don’t rely on just one valuation approach

2. Know your industry - Multiples vary widely by business type

3. Be conservative - Better to underestimate than overestimate

4. Document assumptions - Buyers will scrutinize everything

5. Focus on buyer’s perspective - What will they pay based on ROI?

6. Maximize before you sell - Spend 1-2 years improving metrics

7. Get professional help - M&A advisor for businesses over $5M

8. Valuation ≠ Selling price - It’s a negotiation starting point

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Further Resources

• BizBuySell - See actual selling prices for small businesses
• Axial - M&A platform with market data
• PitchBook - Private company valuation data (paid)
• CapitalIQ - Public company comps (paid)
• “The Business Sale Handbook” by Ethan Bull
• “Built to Sell” by John Warrillow

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Understanding your business value helps you make better strategic decisions, negotiate from a position of strength, and maximize your exit when the time comes. Use this calculator to model different scenarios and see how improvements in revenue, margins, or growth affect your valuation.