Business Valuation Calculator

A business valuation calculator answers the question every owner eventually asks, "how much is my business worth?", with a defensible range instead of a guess. It starts from the earnings a buyer can actually take out of the business, applies the multiples that comparable businesses sold for, cross-checks the result with a discounted cash flow, and makes sure the price never falls below the value of the hard assets. Finally it tests whether a buyer could finance the price, because a value no lender will fund rarely survives a negotiation.

Three related tools go deeper on single steps. The EBITDA Calculator builds EBITDA from an income statement, the WACC Calculator estimates a cost of capital for larger companies, and the Business Loan Calculator prices the acquisition loan in detail.

Value is a range: the three approaches

For tax purposes the IRS describes fair market value as the price at which property would change hands between a willing buyer and a willing seller, neither required to act and both with reasonable knowledge of the relevant facts. For an interest in a closely held business, IRS Publication 561 points to net worth and prospective earning power, the history and nature of the business, the economic outlook of its industry, its competitive position and management, the value of its assets including goodwill, and the value of similar businesses. Those factors trace back to Revenue Ruling 59-60, the IRS's long-standing guidance on valuing closely held stock. It lists eight factors, from the nature and history of the business through earning capacity, dividend-paying capacity and goodwill to the market prices of comparable publicly traded companies, and it says no general formula applies to every valuation.

Appraisers turn those factors into three approaches, the ones named in the IRS business valuation guidelines (IRM 4.48.4): the market approach (what similar businesses sold for), the income approach (what the future cash flow is worth today) and the asset approach (what the assets are worth). The SBA's guide to buying a business lists the same ideas under plainer names, from capitalized earnings and cash flow to tangible assets. Each approach answers a slightly different question, so the honest result is a range where they overlap, not one "true" number. Appraisers reconcile the results by weighting the methods they trust most; this calculator shows the full span instead and lets you switch off a method rather than guess at weights.

Normalizing earnings: SDE and adjusted EBITDA

Tax returns are written to minimize tax, not to show what a new owner would earn, so the first step is always to normalize the earnings. Two measures matter for small businesses:

Seller's discretionary earnings is the total benefit one working owner receives, so it fits businesses that an owner-operator buys and runs. Adjusted EBITDA charges a fair salary for that job, which is the view of an investor who hires a manager and of a lender sizing a loan. If two partners both work in the business, only one owner's pay is added back; the second working owner's salary stays in as a normal expense at a market rate. Only documented items belong in the add-backs: a one-time legal settlement, a family member paid for no work, a personal vehicle run through the company. Rent is normalized too: if the business pays the owner's property company more than market rent, the excess is added back, and if the new lease will cost more than today's rent, the difference is subtracted.

The valuation formulas

Here r is the discount rate, g the long-term growth rate and CF_t the free cash flow in year t. A multiple must be applied to the same earnings measure it was taken from: an SDE multiple belongs on SDE and an EBITDA multiple on EBITDA. The range across methods runs from the lowest to the highest value among the methods you include, and never below the asset floor.

Worked example 1: an HVAC service company

The company in the table above has $1.2 million in revenue, $275,000 of SDE and $205,000 of adjusted EBITDA. Suppose closed sales of similar service businesses suggest 2.0x to 3.0x SDE and 3.0x to 4.5x EBITDA. These calculator defaults are example inputs, not market data.

• SDE method: $275,000 × 2.0 to 3.0 = $550,000 to $825,000.
• EBITDA method: $205,000 × 3.0 to 4.5 = $615,000 to $922,500.
• DCF: $190,000 growing 4% a year gives $197,600 in year 1 up to $231,164 in year 5. At a 25% discount rate those five years are worth $565,820 today; the terminal value at 3% growth is $1,082,268, worth $354,638 today. Total: $920,458.
• Asset floor: $180,000 of equipment, vehicles and inventory minus $30,000 of assumed liabilities = $150,000.

The indicated range is $550,000 to $922,500 with a midpoint of $736,250, or 2.68x SDE. Of that midpoint, $586,250 sits above the net tangible assets and is goodwill: the customer list, the trained technicians and the phone number that rings. A revenue multiple of 0.4x to 0.7x would give $480,000 to $840,000, a useful sanity check but too crude to anchor the price.

Worked example 2: a residential landscaping business

A smaller owner-operated business has $480,000 in revenue, $62,000 of pre-tax profit, $58,000 of owner compensation, $9,000 of depreciation, $3,000 of interest and $4,000 of documented one-time costs. SDE is $136,000; with a $55,000 crew-manager salary, adjusted EBITDA is $81,000.

• SDE at 1.8x to 2.6x: $244,800 to $353,600.
• EBITDA at 2.5x to 3.5x: $202,500 to $283,500.
• DCF: $81,000 − $6,000 of equipment spending = $75,000 of free cash flow. With growth of 2% in every year and a 28% discount rate the DCF equals the one-step capitalization formula, $76,500 ÷ (28% − 2%) = $294,231.
• Asset floor: $70,000 of trucks and mowers minus $10,000 of liabilities = $60,000.

The range is $202,500 to $353,600 with a midpoint of $278,050. A buyer testing $300,000 with 10% down borrows $270,000. For a loan of that size the SBA's maximum variable rate is prime plus 4.5 points, 11.5% with prime at 7.00% in early October 2026. Ten years at 11.5% costs $3,796.08 a month, $45,553 a year, so coverage is $81,000 ÷ $45,553 = 1.78x, and the cash flow would support up to $426,756 at 1.25x. Because the price is under $350,000, the lender may perform its own valuation instead of hiring an outside appraiser, unless buyer and seller have a close relationship.

How sensitive is the value?

Small changes in the multiple or the discount rate move the answer more than any line in the income statement. The price ladder below applies SDE multiples from 2.0x to 4.5x to the HVAC company and tests each price against an SBA loan with 10% down, a 10% rate and a 10-year term.

Every price up to 4.0x SDE clears the 1.25x minimum for an initial acquisition; 4.5x does not. The DCF is just as sensitive to its two rates. This grid holds the HVAC company's $190,000 of free cash flow and 4% growth for five years and varies the discount rate and the terminal growth rate:

A multiple is a discount rate in disguise. Paying M times this year's free cash flow that grows at g forever implies an expected return of r = g + (1 + g) ÷ M. At 3% growth the conversions are:

Read that way, a buyer paying 3x free cash flow expects about 37% a year, compensation for the risk of a small, owner-dependent business. With the 10-year Treasury yield around 5.2% to 5.3% in early October 2026, everything above that is the premium for equity risk, small size and the specific business.

Finding comparable sales and multiples

The calculator deliberately ships without industry multiples. There is no official public source of sale multiples for small private businesses, and a single national average would hide the spread between a lawn service and a dental lab. Good sources of comparable transactions are business brokers, many of whom subscribe to private databases of closed deals; credentialed business appraisers; and the lender financing the deal, which will order its own valuation. Trade associations sometimes survey members' sale prices. For larger companies, SEC filings of public peers show market valuations, but public companies are far larger and easier to sell, so their multiples do not transfer to a small private business without large adjustments.

A useful comparable matches on industry, size of earnings, region and date, ideally closed within the last two or three years. Check the deal terms behind each multiple: whether inventory, receivables or real estate were included, how much was seller-financed, and whether the multiple was quoted on SDE or EBITDA. Asking prices from listing sites are not sale prices and usually sit above where deals close.

Can the price be financed? The SBA 7(a) test

Changes of ownership have become one of the largest categories of SBA 7(a) lending, so for many buyers the SBA's credit rules set a practical ceiling on price. The current rules are in SOP 50 10 8.1, Appendix 15, effective October 1, 2026:

If the price exceeds the appraised value, the buyer must cover the gap with equity, and total acquisition debt, including any seller note that is not on standby, cannot exceed the valuation. Seller earnouts are not allowed, and in an initial acquisition or expansion the seller may stay on only as a paid consultant, for up to 24 months. Lenders also run a global cash flow test that includes the buyer's personal obligations and must reach at least 1.0x, so a buyer who needs a large salary to cover a mortgage leaves less room for loan payments. The calculator's "highest price" figure solves the coverage test backward: it divides EBITDA by the required coverage and converts that yearly payment into a loan amount and a price.

What changes the value

The same earnings can deserve very different multiples. Recurring contracts, a broad customer base and a team that runs the work without the owner support a higher multiple; a single customer that supplies a third of revenue, a key license that may not transfer or a lease that expires next year pull it down. Trends matter as much as levels, which is why lenders look at three years of statements and an interim period.

Deal structure changes the number too. In an asset sale buyer and seller allocate the price across seven IRS asset classes on Form 8594, from cash in Class I through equipment in Class V to goodwill and going concern value in Class VII, which receives whatever is left. The buyer can then amortize goodwill and most other purchased intangibles over 15 years under section 197. In a stock sale the buyer inherits the company's history and liabilities, so price, warranties and indemnities shift. The seller's tax bill depends on that allocation; the Capital Gains Tax Calculator shows the effect of the long-term rates.

How to use this calculator

1. Enter last year's numbers from the tax return or a trailing 12-month statement, and add back only what you can document.
2. Set a market salary for the owner's role to turn SDE into adjusted EBITDA.
3. Replace the example multiples with the low and high multiples from your comparable sales, and switch off any method you do not trust.
4. Set the DCF inputs and watch the sensitivity grid; if the terminal value is more than half of the total, test lower growth.
5. Enter the asset floor, then test a price with the SBA check, or press "Use midpoint".

Owners use it to set an asking price before calling a broker and to see which add-backs carry the most weight. Buyers use it to sanity-check a listing and to find the most they can pay with SBA financing. Advisers use the price ladder to show clients why a higher multiple can fail at the bank.

Key terms

• Fair market value: the price between a willing buyer and a willing seller, both informed and neither compelled to act.
• SDE: seller's discretionary earnings, the total annual benefit to one working owner.
• Adjusted EBITDA: earnings before interest, taxes, depreciation and amortization after normalizing add-backs and charging a market salary for the owner's role.
• Multiple: price divided by an earnings measure, taken from comparable sales.
• Discount rate: the annual return a buyer requires for the risk of owning the business.
• Terminal value: the value at the end of year 5 of all cash flows after year 5.
• Goodwill: the part of the price above the net value of identifiable assets.
• DSCR: debt service coverage ratio, cash flow divided by the year's loan payments.
• Standby debt: a seller note with no payments until the SBA loan is repaid, which the SBA treats as equity.

Tips and limitations

Value the business on the earnings a buyer will verify: SBA lenders check the seller's figures against IRS tax transcripts, and undocumented cash income or add-backs usually drop out of the price. SBA lenders measure coverage on the last fiscal year or on the average of the last two, so run the calculator with both years. Prepare three years of clean statements before going to market, and fix customer concentration or owner dependence first if you have time, since those change the multiple more than one good year changes the earnings.

This calculator works on pre-tax cash flow and ignores income taxes, working capital targets, real estate and debt the seller pays off at closing. It does not apply the discounts for lack of control or marketability that matter when valuing a minority share. For an SBA loan, an estate or gift tax return, a divorce or a partner dispute, a written valuation from a credentialed appraiser is required or strongly advisable.

Related calculators

• For the monthly payment, total interest and amortization of the acquisition loan, use the Business Loan Calculator.
• To discount uneven cash flows or compare projects, use the NPV Calculator or the IRR Calculator.
• To measure the return on the equity you put in, use the ROI Calculator.
• To check margins before applying a multiple, use the Profit Margin Calculator.
• To value equipment for the asset floor, use the Depreciation Calculator.

Sources

• Internal Revenue Service, Publication 561 (12/2025), Determining the Value of Donated Property: fair market value definition and the factors for valuing an interest in a closely held business.
• IRS, Internal Revenue Manual 4.48.4, Business Valuation Guidelines: the asset-based, market and income approaches.
• IRS, Revenue Ruling 59-60, 1959-1 C.B. 237: the eight valuation factors for closely held stock (full text reproduced in Appendix A of the IRS job aid Valuation of Non-Controlling Interests in Business Entities Electing to Be Treated as S Corporations, October 29, 2014).
• IRS, Instructions for Form 8594 (asset classes I to VII and the residual method) and Instructions for Form 4562 (2025) (15-year amortization of section 197 intangibles).
• U.S. Small Business Administration, SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026): Appendix 15 (changes of ownership), Appendix 17 (maturities) and Appendix 18 (interest rates).
• SBA, Buy an existing business or franchise: valuation methods and due diligence.
• Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates (release of October 9, 2026): bank prime loan rate 7.00% and 10-year Treasury yield of 5.22% to 5.31% for October 2 to 8, 2026.