# What is my business valuation?

Estimates what a small business is worth by a multiple of earnings, a multiple of revenue, net assets, or capitalized earnings with a growth rate.

- Page: https://www.acalculator.org/finance/business-valuation-calculator
- JSON spec: https://www.acalculator.org/finance/business-valuation-calculator.json
- Version: 5cbd6e6581a8

## Default answer

Example with the default inputs (Method Earnings multiple, Yearly earnings $250,000.00, Earnings multiple 3): Your business is worth about $750,000.00 by this method.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| method | Method | A multiple of yearly earnings, a multiple of yearly revenue, net assets, or capitalized earnings with growth. |
| e | Yearly earnings | The business’s yearly earnings: seller’s discretionary earnings (SDE) or EBITDA. |
| em | Earnings multiple | What buyers pay per dollar of yearly earnings, from sales of similar businesses. |
| rev | Yearly revenue | The business’s yearly sales. |
| rm | Revenue multiple | What buyers pay per dollar of yearly revenue, from sales of similar businesses. |
| assets | Total assets | What the business owns, at fair market value. |
| debts | Total liabilities | What the business owes. |
| r | Discount rate | The yearly return a buyer wants for the risk of this business. |
| g | Long-term growth rate | How fast earnings grow each year, for ever. It must be below the discount rate. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| value | Business value | The estimate by the method you chose. |
| next | Next year’s earnings | Yearly earnings × (1 + growth ÷ 100), for capitalized earnings. |
| capRate | Capitalization rate | Discount rate − growth rate, for capitalized earnings. |
| multiple | Implied earnings multiple | Value ÷ this year’s earnings, for capitalized earnings. |

## Method

Earnings multiple: value = earnings × multiple. Revenue multiple: value = revenue × multiple. Net assets: value = assets − liabilities. Capitalized earnings: value = earnings × (1 + g) ÷ (r − g).

## Assumptions

- The multiples, discount rate and growth rate are yours to choose from sales of similar businesses; the calculator does not look them up.
- Capitalized earnings assume earnings grow at the same rate for ever and the discount rate is above the growth rate.
- An estimate for planning, not an appraisal: the IRS lists the asset-based, market and income approaches and expects an appraiser to weigh them.

## Worked examples

1. method = earnings, e = $250,000.00, em = 3 gives value = $750,000.00. Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the market approach, with multiples consistent with the benefit stream), https://www.irs.gov/irm/part4/irm_04-048-004.
2. method = income, e = $100,000.00, r = 13%, g = 3% gives value = $1,030,000.00, next = $103,000.00, capRate = 10%, multiple = 10.3. Source: OpenStax, Principles of Finance, §11.2 Dividend Discount Models (constant growth: value = D₀(1 + g) ÷ (r − g)), https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms.
3. method = assets, assets = $900,000.00, debts = $350,000.00 gives value = $550,000.00. Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the asset-based approach), https://www.irs.gov/irm/part4/irm_04-048-004.
4. method = revenue, rev = $1,250,000.00, rm = 0.65 gives value = $812,500.00. Source: IRS, Internal Revenue Manual 4.48.4 Business Valuation Guidelines (§4.48.4.2.3: the market approach), https://www.irs.gov/irm/part4/irm_04-048-004.

## FAQ

### How do you value a small business?

The IRS’s business valuation guidelines name three generally accepted approaches: asset-based (what the business owns minus what it owes), market (multiples from sales of similar businesses), and income (the value of the earnings it will make). An appraiser usually tries more than one and weighs them.

### What is an earnings multiple?

The price buyers pay per dollar of yearly earnings. With seller’s discretionary earnings (SDE) of $250,000 and a multiple of 3, the value is $750,000. The right multiple comes from sales of similar businesses in your industry and size.

### What is the difference between SDE and EBITDA?

Both are yearly earnings before interest, taxes, depreciation and amortization. SDE also adds back one owner’s pay and perks, so it suits small owner-run businesses; EBITDA suits larger ones with paid managers. Use the multiple that matches the earnings you type.

### How does capitalized earnings work?

It treats the business as a stream of earnings that grows at a steady rate for ever and finds today’s value of that stream: next year’s earnings ÷ (discount rate − growth rate). $100,000 growing 3% at a 13% discount rate is 103,000 ÷ 0.10 = $1,030,000.

### Why must the discount rate be above the growth rate?

If earnings grow as fast as the return you ask for, or faster, the sum of the growing stream has no limit, and the formula gives no answer. Use a growth rate you expect to last for many years.

### When is the net asset method used?

For businesses whose value is mostly in what they own, such as holding companies, or ones that earn little. Use fair market values for the assets, not the book values, where you can.

## Sources

- IRS, Internal Revenue Manual 4.48.4, Business Valuation Guidelines, §4.48.4.2.3 Analyzing (the three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach; select discount rates, capitalization rates or multiples consistent with the benefit stream). https://www.irs.gov/irm/part4/irm_04-048-004 (retrieved 2026-10-02)
- OpenStax, Principles of Finance, §11.2 Dividend Discount Models (DDMs) (constant growth model: value = D₀(1 + g) ÷ (r − g) = D₁ ÷ (r − g)). https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms (retrieved 2026-10-02)