Business Valuation Calculator
Earnings multiple, revenue multiple and discounted cash flow side by side, as a range, with the terminal value and the discount rate shown doing the work.
Revenue $960,000.00
Earnings $180,000.00
Owner's salary and add-backs $95,000.00
Seller's discretionary earnings $275,000.00
Earnings as a share of revenue 28.6%
By an earnings multiple
multiple 3.20×
value $880,000.00
implied revenue multiple 0.92×
By a revenue multiple
multiple 1.10×
value $1,056,000.00
implied earnings multiple 3.84×
By discounted cash flow, 5 years at 8% growth
at 15% discount $2,719,611.42
at 20% discount $1,933,717.50 ← middle
at 25% discount $1,493,086.78
at 30% discount $1,212,200.20
of the middle figure
the projected years $1,013,537.25, 52.4%
the terminal value $920,180.25, 47.6%
which means most of the answer is an assumption about the years you did not project
Adjusting for the balance sheet
cash and surplus assets $40,000.00
debt to be repaid $120,000.00
equity value at the middle $1,853,717.50
The range
lowest of the three $880,000.00
highest of the three $1,933,717.50
spread 2.20×
what that means the methods disagree enough that the difference needs explaining before anybody writes an offer
The three methods give $880,000.00 to $1,933,717.50, a spread of 2.20
times. That range is the valuation. A single number is a negotiating
position, and the width of the range is what tells you how much argument
to expect.
Earnings here are seller's discretionary earnings: $180,000.00 of profit
plus $95,000.00 of owner's salary and add-backs. That adjustment is
right when a buyer replaces the owner, and it moves the valuation by
more than the multiple does, which is why it is the first thing a buyer
will challenge.
47.6% of the discounted cash flow figure is the terminal value: the
years beyond the projection, valued by a formula on a perpetual growth
assumption. Most of a DCF answer is therefore a guess about the distant
future, which is why it is shown across four discount rates rather than
at one.
The cash flow discounted above is seller's discretionary earnings, which
includes the owner's pay. A buyer has to cover that work, either by
doing it themselves or by hiring a manager, so a DCF run on that figure
overstates the value by roughly the cost of a manager each year. Deduct
a market salary before reading the discounted figure: at $95,000.00 a
year that is a large adjustment, and it is most of why the discounted
figure here sits above the multiple ones.
The discount rate is doing the work. For a private business, 15 to 30
percent is the usual range, reflecting how risky and illiquid the thing
is, and moving it by five points moves the answer by tens of percent.
Anybody presenting a DCF with one discount rate is presenting a
conclusion rather than an analysis.
The multiple is about the business, not the sector. Customer
concentration, whether the business runs without the owner, recurring
against project revenue, contract length, the state of the books and how
long it has traded all move it, and a business that cannot be handed
over trades at the bottom of its range whatever the average is.
A revenue multiple is a shortcut for the cases where earnings are
misleading: a subscription business investing in growth, or one whose
profit is suppressed by a deliberate decision. Applied to a business
with thin margins it flatters it, which is why the implied earnings
multiple is printed next to it.
What gets sold is usually assets rather than shares, and the balance
sheet is treated separately: cash stays with the seller, debt is repaid,
and stock and equipment are counted at what they are worth to the buyer.
Those adjustments are large enough to change a deal.
The only valuation that matters is what somebody pays. Comparable sales
beat any formula here, a broker with real transaction data in your
sector is worth the fee, and none of this is advice about your specific
business.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
The example below values the same business at $880,000, $1,056,000 and $1,933,717, depending on the method. That spread is not a failure of the arithmetic. It is the valuation.
An earnings multiple asks what comparable businesses sold for. A revenue multiple asks the same question in the one case where earnings mislead. A discounted cash flow asks what the future cash is worth today, and its answer is dominated by the discount rate and the terminal growth assumption rather than by anything about the business, which is why it is shown at four discount rates instead of one.
For a small owner-operated business, the earnings figure that matters is seller’s discretionary earnings: profit plus the owner’s salary and personal expenses, because the buyer is replacing the owner. That adjustment moves the valuation more than the choice of multiple does.
How to use
- Put in revenue and earnings, then the owner’s salary and add-backs separately.
- Set the multiples you think comparable sales support.
- Read the range, and the note about how much of the DCF is terminal value.
Example
$960,000 of revenue, $180,000 of profit, $95,000 of owner’s pay added back:
Seller's discretionary earnings $275,000.00
By an earnings multiple
multiple 3.20×
value $880,000.00
implied revenue multiple 0.92×
By a revenue multiple
value $1,056,000.00
implied earnings multiple 3.84×
By discounted cash flow, 5 years at 8% growth
at 15% discount $2,719,611.42
at 20% discount $1,933,717.50 ← middle
at 25% discount $1,493,086.78
at 30% discount $1,212,200.20
of the middle figure
the terminal value $920,180.25, 47.6%
The range
lowest of the three $880,000.00
highest of the three $1,933,717.50
spread 2.20×Five points on the discount rate moves the answer by $440,000. Nearly half of the middle figure is terminal value, which is a formula applied to a guess about the years nobody projected.
Pitfalls
A DCF on discretionary earnings double-counts the owner. Those earnings include the owner’s pay, and a buyer has to cover that work: either they do it, at an opportunity cost, or they hire a manager. Deduct a market salary before reading the discounted figure. That is most of why the DCF sits so far above the multiples here.
The discount rate is the answer. For a private business, 15 to 30 percent is the usual range, and moving it five points moves the valuation by tens of percent. Anybody presenting a DCF at a single discount rate is presenting a conclusion.
The multiple is about the business, not the sector. Customer concentration, whether the business runs without the owner, recurring against project revenue, contract length, the state of the books and how long it has traded all move it. A business that cannot be handed over trades at the bottom of its range whatever the sector average is.
A revenue multiple is for the cases where earnings mislead. A subscription business investing in growth, or one whose profit is suppressed deliberately. Applied to a business with thin margins it flatters it, which is why the implied earnings multiple is printed next to it.
Add-backs get challenged. Every buyer’s advisor goes through them line by line, and the ones that survive are genuinely discretionary and documented. A valuation resting on add-backs you cannot evidence is a valuation that falls apart in due diligence.
The balance sheet is separate. Most small businesses sell as assets rather than shares: cash stays with the seller, debt is repaid, and stock and equipment are counted at what they are worth to the buyer. Those adjustments are large enough to change a deal.
Terminal growth cannot exceed the economy. Nothing grows faster than GDP forever, and the arithmetic literally breaks if it reaches the discount rate. Two to three percent is the defensible range.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored, which matters for figures like these.
The DCF projects the cash flow forward at the growth rate, discounts each year, and adds a terminal value by the Gordon growth model, which requires the discount rate to exceed the perpetual growth rate. The split between projected years and terminal value is printed because it is usually the most informative line in the output.
All three methods are computed every time, and the range is taken across them rather than an average being presented as an answer. The spread is reported as a multiple, with a plain statement about whether the methods agree.
This is arithmetic, not advice. Real valuations rest on comparable transactions in your sector, which nobody can calculate from the numbers on this page, and a broker with real transaction data is worth the fee when a business is actually being sold.