Whether you’re planning to sell your business, attract investors, or simply curious what your hard work is worth, understanding your company’s value can help you make smarter financial moves. Our free business valuation calculator makes it easy to get an estimate in minutes — no spreadsheets or expensive consulting fees required.
There are also different formulas you can use when calculating business worth, which can include criteria such as business industry, annual sales and profits, and owner’s salary. You can use our business valuation calculator below to help you with these calculations.
Type of BusinessAgricultureCommunicationsConstruction-BuildingConstruction-HeavyConstruction-Special TradesElectric, Gas, Water, Sanitary SvcsBusiness Services (B2B)Consumer Services (B2C)Domain Name/Basic SiteGeneral InternetSoftwareWeb Design/Tech ServicesApparel & finished fabricsChemicals & Allied ProductsElectronic & Electrical Equip,Fabricated Metal ProductsFood and Kindred ProductsFurniture and FixturesIndustrial & Comm, MachineryLumber and Wood ProductsMeasuring & Analyzing Instr,MiscellaneousPaper & Allied ProductsPrimary Metal IndustriesPrinting, PublishingRubber and Plastic ProductsStone, Clay, Glass, ConcreteTextile Mill ProductsTobacco ProductsTransportation EquipmentRestaurantsApparel and Accessory StoresAutomotive DealersBars/TavernsBlding Mat,, Hardware, GardenConvenience StoresFloristsGasoline Service StationsGeneral Merchandise StoresHome Furniture & FurnishingsLiquor StoresMarine Dealers & EquipmentMiscellaneous RetailOther Eating & Drinking PlacesOther Food StoresPet Shops & SuppliesSupermarketsVending MachinesAgents & BrokersAmusement & RecreationAuto Repair, Parts & ServicesBeauty Salons, Barber ShopsComputer & Software ServicesDrycleaning/Laundry ServicesEducational ServicesEngineering & Accounting SvcsFinance, Banking, Loans, etc,Freight, Moving/DeliveryHealth, Medical & DentalHotels & Other Lodging PlacesLandscaping & Yard ServicesLegal ServicesMarine Repair, Parts & ServicesMembership OrganizationsMiscellaneous Repair ServicesMiscellaneous ServicesMotion PicturesMuseums, Art Galleries, ZoosOther Business ServicesOther Personal ServicesOther Travel & TransportationPassenger TransportationPet Care & GroomingSocial ServicesStorage & WarehousingTravel AgenciesDurable GoodsNondurable GoodsNon-classifiable EstablishmentsLast 12 Months Sales $Last 12 Months Profits + Owner's Salary $Calculate
If you’re looking for advice in preparing a valuation, consider an expert such as Guidant. With its business valuation services, you’ll be paired with a consultant who can walk you through the process and answer any questions you may have. For $545, its services include a customized business valuation report and an in-depth funding assessment.
- How to use the business valuation calculator (step-by-step)
- Business valuation formula
- Business valuation inputs
- Business valuation outputs
- Common mistakes when valuing a business yourself
- Pros & cons of using a business valuation calculator
- How a business valuation works
- Business valuation methods
- Who a business valuation is right for
- Where to get a business valuation
- Frequently asked questions (FAQs)
- Bottom line
How to use the business valuation calculator (step-by-step)
To get the most accurate estimate, follow these quick steps before running the calculator:
- Choose your industry: Select the closest match for your business type. Industry multipliers vary based on market stability and growth potential.
- Enter your total sales: Input your business’s total revenue over the last 12 months — not profit, just gross income.
- Add your profit + owner’s salary: This helps calculate your Seller’s Discretionary Earnings (SDE).
- Compare your two results: You’ll receive one valuation based on sales and another based on profits.
Business valuation formula
Our calculator’s formula involves using an income-based approach to estimating the value of a business. While it’s not the only way to calculate value, it’s a reliable starting point that provides a general estimate of worth. That said, business owners may want to consider other valuation methods to get a better picture of what their business is worth.
Here are the business valuation formulas we used:
Annual Sales Multiple Formula
Business Valuation
= Annual sales × industry multiple
Seller’s Discretionary Earnings (SDE) Multiple Formula
SDE Valuation
= (Annual profits + owner’s salary) × industry multiple
Business valuation inputs
For the business valuation calculator we provided, the inputs required are inclusive of details that reflect various aspects of business information, mainly to do with industry, sales, and profit. These sections are detailed below:
Industry
For the first section, you’ll need to select the applicable industry that relates to the business. Choose the closest match if the exact industry associated with the business isn’t available as an option.
This step involves the multiplier that the calculator uses to generate the final valuation and can vary depending on the industry in which the business operates.
For instance, two businesses might each earn $100,000 annually, but a professional services firm, such as a law practice, is typically valued higher than a restaurant due to its recurring revenue and lower operating risk.
Last 12 months sales
The second section requires you to input the last 12 months’ worth of sales from the business. This information can typically be referenced from the most recent income statement of the business.
Remember, sales should represent total revenue before subtracting any expenses.
Last 12 months profits + owner’s salary
In the last section, you’ll input the last 12 months’ worth of profit — essentially the total revenue of the business minus its expenses. Typically, these values can be found in the most recent profit and loss statement.
You should also include the owner’s salary (as applicable) as an expense as part of this calculation.
Business valuation outputs
Our calculator will provide you with two outputs, essentially offering an estimate of values based on both sales and revenue. Here’s what you can expect from these calculations based on your previously inputted values:
Business value based on sales
The first output will give you an approximate value for your business based on the previously inputted annual sales multiplied by its associated industry sales multiplier.
For example, if you are selling a law firm that made $100,000 in annual sales, the industry sales multiplier is 1.03, and the approximate value is $103,000 ($100,000 × 1.03).
Business value based on profits + owner’s salary
The second output will also give you an approximate value for your business based on the previously inputted annual profits multiplied by its associated industry profit multiplier.
Using the same example from above, referencing a law firm, let’s assume the profits were $40,000. The industry profit multiplier is 1.99, so the approximate value is $79,600 ($40,000 × 1.99).
Common mistakes when valuing a business yourself
Many small business owners make simple but costly mistakes when estimating their worth. Here are the most common ones to avoid:
- Using outdated financial data: Always rely on the most recent 12 months for the clearest snapshot.
- Ignoring liabilities or business debt: This can skew your overall value.
- Overestimating growth potential: You’ll need proper data to back up your projections.
- Failing to adjust for owner-specific roles: If your business depends heavily on you, that can reduce its market value.
- Relying only on one method: Cross-checking with asset-based or market comparisons can make your estimate more realistic.
Pros & cons of using a business valuation calculator
| PROS | CONS |
|---|---|
| It can be used as a simple tool to estimate a business’s value for both buyers and sellers. | Our calculator excludes business assets, which can make up a significant portion of the actual value of a business. |
| It can include an average industry multiple in the calculation, which is useful as not all industries have the same risks and opportunities. | For some businesses, market trends may vary and influence valuations. |
| By focusing on actual revenues and profits generated by a business, our calculator is based on a business’s bottom line. | A math-based calculation ignores factors like intangible assets and year-over-year growth. |
How a business valuation works
A business valuation represents the total economic value of your company. It examines profitability, expenses, and overall growth potential.
Valuations often occur before a sale or acquisition, but can also help owners understand their company’s financial standing or long-term potential.
Factors that go into a business valuation
There are numerous considerations taken into account when performing a business valuation. This can include factors such as:
- Industry
- Net profit
- Company assets
- Real estate & lease terms
- Growth trends
- Business model
- Competitors
- Online and offline sales network
- Website traffic (if significant to your business model)
Business valuation methods
There is a wide variety of business valuation methods that can be used to estimate the value of a business. Generally, they fit within these three categories:
- Income-based approach: This is what we took with our calculator. Essentially, it evaluates the total amount of income a business generates currently, along with expected income projections for the future.
- Asset-driven approach: Some valuations can be made strictly using business assets. Basically, it calculates the difference between the assets of a business (inclusive of property, equipment, inventory, etc.) against its current liabilities.
- Market approach: With this, a valuation is based on the purchases and sales of similar businesses that are within the same industry. Naturally, it’s a comparison between businesses to determine what it might be worth in the future.
Who a business valuation is right for
A business valuation is applicable to both buyers and sellers of a business, as well as investors, and is a useful tool when determining whether a business has high growth potential and fits the budget of a buyer or what monetary value the seller can expect to receive upon the sale of the business.
For business owners who have started their own business and are potentially looking to sell, a business valuation provides an estimate of what you could realistically expect to earn from a sale.
If this is the case, here are some tips you should consider:
Consult an expert to prepare the valuation. Sellers looking to be acquired should consider an expert to prepare their business valuation. This is because there are numerous factors taken into account, and having a detailed valuation can only help you when approaching potential investors or buyers.
Understand the terms and conditions of the sale. For both the valuation and potential transaction, you should understand the various terms and conditions associated with the method of valuation you choose. Do your research to ensure that you can make sense of what’s needed from the sale and that all parties involved are on the same page.
A business valuation can also be useful for potential business owners wondering whether or not they should start their own business. Our calculator can give you a general idea of what your business might be worth in the future.
For buyers looking to acquire a company, a business valuation is vital when determining whether it’s a good deal or not. It can also allow you insight into the operations of the business, its growth potential, and what changes may need to be made.
Here are some tips for buyers to consider:
Do your research on the business industry. You should consider businesses in industries that have high potential. While upfront costs of acquisition may be more expensive than other industries, the business is more likely to hold its value and continue with a strong growth trajectory.
Use a business broker to facilitate a transaction. A broker may introduce you to viable opportunities that you may otherwise not know about. Brokers can also offer negotiation and additional valuation services, which can help you ensure your investment is worth the time and effort.
Investors looking to support a business may benefit from a business valuation, similar to how a buyer can use the information to learn more about the operations, structure, and growth potential. By presenting a detailed valuation to investors, a business is likely to gain more interest and therefore more financial support.
For a business seeking investors, here are some tips when preparing a valuation:
Provide as transparent a report as possible. This means clearly demonstrating the factors considered within the valuation and detailing the report in an organized manner and in a way that can be easily understood and referenced by investors.
Be available for questions and further information requests. For business owners looking for investors to support their business, it’s important to manage expectations. This means being available to answer supplemental questions regarding your valuation or providing further documentation or information when necessary.
Where to get a business valuation
A business valuation can be sourced from a variety of providers, and preference can depend on how detailed a valuation you’re looking for. Generally, a business valuation can be provided by the business owner for a simplified valuation and general overview of the business, or through a more experienced provider, such as a business appraiser, broker, or valuation specialist, for a more comprehensive report.
For an official valuation, we recommend consulting an expert who can guide you through the process. You can utilize valuation specialists by visiting Guidant, our recommended provider.
Frequently asked questions (FAQs)
How can I calculate my business valuation?
There are various methods to calculate your business’s valuation. Our calculator offers a quick, income-based estimate, though comparing multiple methods gives the best overall picture. This calculation, however, doesn’t consider assets or market trends, so it’s best to ensure that you compare methods before settling on a final valuation number.
How many times profit is a business worth?
Numerous factors can influence the number of times a business is worth its profit, including factors such as industry and development stage. Generally speaking, however, a small business can expect to typically be worth 1 to 2 times its annual profit.
Who needs a business valuation?
Business valuations are commonly used by business owners looking to sell, buyers interested in acquiring the business, and investors looking for a stake in a business. While a valuation can take place in other instances as well, it’s generally a calculation that can be used to provide estimates of the overall value of the business for any applicable party who may be interested.
Bottom line
When determining the value of a business, you can use a business valuation formula to calculate how much the business may be worth. While there are various methods to consider, you can use valuation estimates to better understand the total value of your business from either a buyer or seller standpoint. Using our business valuation calculator can aid with this process and, ultimately, help make important business decisions.
