What might your business be worth?
Owners ask what the business is worth when a sale, a buyout, succession or a loan comes into view. This is a planning estimate to think with, not an appraisal.
Adjusted earnings are EBITDA plus any owner pay above a market salary. Those are grown forward, discounted back to today's dollars at your required return, and reduced for marketability because a private business takes real work to sell.
The math
How this works
How do you value a small business?
There are a few common approaches, and most owners end up looking at more than one. A multiple of earnings applies a rule-of-thumb factor to annual profit, which is quick but hides the assumptions. A discounted earnings approach, which this calculator uses, projects earnings forward and brings them back to today's dollars so risk and waiting are visible. An asset-based approach adds up what the equipment, inventory, and receivables would fetch if the business were wound down, and it tends to matter most when earnings are thin. A real transaction brings in a professional valuation and the buyer's own diligence, so use any calculator result as preparation rather than a conclusion.
What is a discount rate in a business valuation?
A discount rate is the annual return someone would need to justify putting money into your business instead of somewhere safer. Because a dollar arriving five years from now is worth less than a dollar today, each future year of earnings gets divided down by that rate, and the further out the year, the larger the reduction. A higher rate means more perceived risk and a lower present value, so this one input moves the answer more than almost any other. If the business leans on a handful of customers, one key person, or a single contract, the rate belongs at the higher end of whatever range you are considering.
Why do add-backs and owner pay matter when valuing a business?
A buyer cares about what the business earns, not about what you chose to pay yourself. If you take more than the going rate for the work you personally do, the difference is added back, because a new owner could hire that role at market pay and keep the rest as profit. The same reasoning applies to personal costs running through the business and to one-time expenses that will not repeat. Adjusted earnings is the figure left after those corrections, and it is usually the number both sides spend the most time on. Getting it clean also makes the business easier to explain to a lender or an accountant.
Questions people ask
Is this an appraisal I can use for a sale or a loan?
No. This is a planning calculator that shows how a discounted earnings estimate behaves with your own numbers. A bank, a buyer, or a court will want a valuation from a qualified appraiser who reviews your books, contracts, customer base, and market. Finli is not a bank and does not appraise businesses.
What is a marketability discount?
It is a reduction that reflects how hard a private business is to turn into cash. You cannot list it in the morning and have money by the afternoon the way you can with a publicly traded share; finding the right buyer, agreeing on terms, and closing can take many months. The discount lowers the estimate to acknowledge that wait and the uncertainty that comes with it.
What growth rate should I use?
Use what your own history supports. Pull revenue and profit for the last three years, see what the trend actually was, then adjust for anything you already know is changing, such as a lease ending or a large customer leaving. Growth compounds across every year in the projection, so a small overstatement makes the final number look very different.
Why is my implied multiple different from what I heard for my industry?
The multiple shown here is the estimated value divided by adjusted earnings, so it falls out of the inputs you entered rather than from market data about comparable sales. If it looks out of line with what you have heard, the usual causes are the growth rate, the required return, or the number of years counted. Change one input at a time to see which assumption is doing the work.
Tools that pair with this one
Free financial education from Finli
Practical guides, webinars and new tools for small business owners. No sales pitch.
We never sell your information. Unsubscribe any time.
This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.