Calculate your business valuation using revenue and earnings multiples. Get a valuation range based on industry benchmarks and financial metrics.
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Net profit or SDE (salary + discretionary expenses)
Equipment, inventory, real estate at fair market value
A Texas-based freelance graphic designer earns $140,000 net profit/year from client work. She's evaluating whether to stay as a sole proprietor, form an LLC, or elect S-Corp status to reduce self-employment taxes.
Takeaway: S-Corp saves $8,300/year but adds ~$1,500-$3,000 in accounting fees (payroll, extra returns). Break-even is around $80-90K net profit. Below that, the overhead eats the savings. Texas has no state income tax, so the benefit is purely federal SE savings.
LLC annual fees range from $0 (Ohio) to $800 minimum (California, even for zero-revenue LLCs). Delaware C-Corp is standard for VC-backed companies but adds registered agent costs (~$300/yr) for out-of-state entities. The "best" structure is state-specific.
S-Corps cannot have more than 100 shareholders, cannot have non-US shareholders, and cannot have corporate shareholders. Violating these rules (e.g., adding a foreign investor) terminates S-Corp status retroactively, potentially creating a large unexpected tax event.
The IRS requires S-Corp owner-employees to pay themselves a "reasonable salary" before taking distributions. There is no fixed formula — the IRS looks at industry benchmarks, duties, and hours worked. Setting the salary too low is a common audit trigger for S-Corps.
Business break-even models track revenue vs. direct costs. They rarely factor in the owner's time as a cost. If you're working 60 hours/week at imputed $50/hour, your "profitable" business may be paying you $12/hour after the opportunity cost calculation.
Break-Even CalculatorA service business valued on EBITDA multiples (2-4×) gets a very different number than one valued on SDE (seller's discretionary earnings) or discounted cash flow. Buyers and sellers typically use different methods to argue their preferred price. This calculator uses a single method.
Business Valuation CalculatorBased on your inputs
Fair value estimate: $625,000
| Revenue-Based (Low) | $400,000 |
|---|---|
| Revenue-Based (Mid) | $750,000 |
| Revenue-Based (High) | $1,250,000 |
| Earnings-Based (Low) | $300,000 |
| Earnings-Based (Mid) | $500,000 |
| Earnings-Based (High) | $700,000 |
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Business valuation answers:"What is my business worth?" The answer depends on who's asking, when, and why. A bank valuing your business for a loan may use one approach; a buyer considering acquisition uses another; the IRS values it for estate taxes differently still. Professional business appraisals typically use three approaches: the income approach (what the business generates in cash), the market approach (what similar businesses sold for), and the asset approach (net liquidation value of tangible and intangible assets). This calculator focuses on the market approach—comparing your business to industry multiples—because it's the fastest and most accessible for small business owners.
The revenue multiple approach values your business as: Business Value = Annual Revenue × Multiplier. Example: $1,000,000 annual revenue × 2.0 multiple = $2,000,000 valuation. This method is simple but ignores profitability. A business generating $1M revenue and $10,000 profit gets the same multiple as a business generating $1M revenue and $400,000 profit—obviously unfair. Revenue multiples vary wildly by industry: High-margin, fast-growing software companies: 6–12× revenue (because 60%+ margins are common). E-commerce businesses: 0.5–2.0× revenue (because margins are 5–20%). Manufacturing: 0.6–2.0× revenue (margins 10–30%). Retail: 0.3–1.0× revenue (margins 2–10%). Revenue multiples are useful when: comparing businesses within the same industry (margins are similar), buyer cares about market penetration or customer base growth, the business is pre-revenue or barely profitable (startups), or you're valuing a business being acquired for strategic reasons (customer base, market position) rather than cash flow.
The earnings multiple approach values your business as: Business Value = Annual Profit × Multiplier. Example: $100,000 annual profit × 6.0 multiple = $600,000 valuation. This method is more logical than revenue multiples because it captures profitability. Two businesses with $1M revenue but different profit margins will get very different valuations—as they should. Typical earnings multiples: High-growth SaaS: 15–30× earnings (predictable, scalable, high growth). Stable consulting firms: 5–8× earnings (predictable but limited growth). Mature manufacturing: 4–6× earnings (stable but low growth). Retail: 3–5× earnings (low growth, high operational risk). Why do some businesses get 30× multiples and others 3×? The multiple captures the market's confidence in future earnings stability and growth. A buyer of a profitable SaaS business with 50% annual growth will pay 15–20× earnings because they expect continued growth. A buyer of a retail business with 2% annual growth will pay 3–5× earnings because they expect stable, slow growth.
Factors driving higher multiples (premium multiples): Strong and predictable earnings (recurring revenue, long contracts), high growth rate (20%+ annually), competitive advantages (brand, patents, customer loyalty), diversified customer base (no single customer > 10% of revenue), proven management team, stable industry, strong margins (30%+). Factors driving lower multiples (discount multiples): Declining or volatile earnings, low growth rate (< 5% annually), intense competition, concentrated customer base (key-man risk), inexperienced management, cyclical or declining industry, thin margins (< 10%). A SaaS business with $100,000 profit, 50% growth, and predictable annual contracts might trade at 20× = $2,000,000. The same-sized business with flat growth, monthly contracts, and one customer = 40% of revenue might trade at 4× = $400,000. The earnings are identical; the multiples differ 5× due to risk and growth.
For small businesses (especially owner-operated), buyers don't care about accounting profit—they care about owner discretionary earnings (SDE). SDE = Net Profit + Owner's Salary + Owner-Paid Expenses. Why? Because the new owner will replace you and earn your salary instead. Example: Restaurant valued at $200,000/year revenue, with $15,000 accounting profit. The owner pays themselves $50,000/year salary (owner expense). SDE = $15,000 + $50,000 = $65,000. The buyer values the business not on $15,000 profit but on $65,000 SDE capacity. At 4× multiple (typical for restaurants): $65,000 × 4 = $260,000 valuation. Accounting profit grossly undervalued the business. Always calculate SDE for small business valuations.
Some businesses are valued partly on assets. Asset value sets a floor—a business worth less than its assets, when liquidated, is worth its tangible asset value instead. Example: Manufacturing company with $2,000,000 in equipment and inventory. If valued on earnings at only $1,500,000, but liquidation value of assets is $1,800,000, the business is worth at least $1,800,000 (otherwise, why not buy and liquidate?). Asset-heavy businesses (manufacturing, real estate, equipment leasing) sometimes have valuations driven more by asset value than earnings multiples. Asset-light businesses (software, consulting, services) have valuations driven almost entirely by earnings multiples because assets are minimal.
Step 1: Enter your annual revenue and profit. Step 2: Choose your industry. Step 3: Enter asset value (equipment, inventory, real estate at fair market value). Step 4: The calculator shows a valuation range using both revenue and earnings multiples. The low, mid, and high estimates correspond to discount, fair, and premium multiples. Step 5: Compare the results to your own sense of the business's prospects. Is growth strong? Are margins stable? Are there concentration risks? Adjust your mental estimate based on these factors—the calculator's"fair value" is likely biased toward average; your business may deserve premium or discount multiples.
This calculator is accurate for: Mature businesses with stable, predictable earnings (> 5 years history). Businesses in stable industries without major disruption. Businesses with diversified customer bases and no customer concentration risk. Businesses with professional management (not heavily dependent on the owner). Situations where similar-sized comparable businesses in your industry have recently sold (so multiples are market-validated). This calculator is less accurate for: Early-stage/hypergrowth businesses (multiples are highly speculative). Businesses in declining or disrupted industries (multiples compress). Owner-dependent businesses (value drops sharply if owner leaves). Heavily asset-based businesses (asset value may dominate over earnings). Highly concentrated customer base (add 20–30% discount).
If you're seriously considering selling, getting acquired, taking on investors, or using valuation for lending, hire a professional business appraiser. Professional valuations cost $2,000–$10,000 but include: detailed financial analysis and normalization (removing one-time items), market analysis (comparable company sales), buyer interview insights (what buyers in your industry actually value), legal defensibility (IRS acceptable for estate/tax purposes), and detailed written report. This calculator is a free starting point; a professional appraisal is investment-grade.
SDE is the profit a new owner could spend: net profit + owner's salary + owner-paid expenses (car, travel, phone). It represents true owner earnings, not just accounting profit.
Revenue multiples typically 0.5–3.0×; earnings multiples 3–10×. High-growth, high-margin businesses command higher multiples. Low-growth commodity businesses get lower multiples. This calculator uses typical ranges by industry.
Higher growth justifies higher multiples. A SaaS company growing 50% annually might get 8–10× earnings; a mature service business growing 5% might get 3–5×. Growth is priced into the multiple.
Asset-heavy businesses (manufacturing, real estate, equipment) may have a valuation floor based on asset value. Asset-light businesses (software, services) typically valued on earnings or revenue multiples alone.
Both. Revenue multiple works when profit margins are variable across competitors. Earnings multiple is more accurate when profit margins are stable. Buyers typically use earnings multiples because they care about cash flow.
Multiply your annual SDE (Seller's Discretionary Earnings) by an industry-appropriate multiple, typically 2-4x for small businesses. Then adjust for assets, liabilities, and intangibles like customer concentration. A business earning $200K SDE with a 3x multiple is valued at $600K.
Higher multiples are justified by recurring revenue, strong growth rates, diverse customer base, proprietary technology, long-term contracts, high profit margins, and minimal owner dependence. Businesses with subscription models or sticky customers command premium valuations.
If one customer accounts for more than 20-30% of revenue, the business is considered risky and valuations drop. Buyers apply a discount of 10-30% because losing that customer would significantly impact the business. Diversified revenue streams increase valuation multiples.
Enterprise value is the total value of the business including debt. Equity value is what the owner receives after subtracting debt and adding cash. Enterprise value = equity value + debt - cash. Buyers negotiate on enterprise value; sellers care about equity value.
Get a professional valuation when selling, seeking investors, estate planning, divorce proceedings, or partnership disputes. Certified valuations cost $3,000-$15,000 but provide defensible numbers. Use online calculators for preliminary estimates before investing in formal appraisals.
Revenue-Based: Value = Annual Revenue × Revenue Multiplier
Earnings-Based: Value = Annual Profit × Earnings Multiplier
Final Valuation = Max(Asset Value, Average of Both Methods)
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.