Value my business is the search an owner types the week before the broker's meeting, and the answer is a sum the owner can do that afternoon: the last twelve months' profit with the owner's salary and the one-off costs added back, times the multiple the owner was quoted, plus the inventory at cost. How much is my business worth to sell is that number at two or three multiples, read as a range, and how much is my small business worth is the same arithmetic on a smaller ledger. This page works it on the hub's example, says what a quick business valuation leaves out and what company valuation software has to show, and points at the free small business valuation tool on this site that does the sum from your own figures, with no account, and publishes no multiple.
How to determine the value of a small business: three numbers
Discretionary earnings: the net profit for the trailing twelve months plus the owner's salary and benefits, interest, depreciation and one-off costs, $180,000 on the hub's example. The multiple: the number the owner was quoted or has in mind, 2.5 on the tool's default. The inventory: the stock on hand counted at cost, $36,000 on the example. Value equals earnings times multiple plus inventory: $450,000 plus $36,000 is $486,000, which is 2.7 dollars for every dollar of earnings once the stock is in. The IRS Schedule C, linked below, is where a sole proprietor's profit is reported; the discretionary earnings are that profit with the add-backs a buyer will not inherit.
How much is my business worth to sell: the range, not the point
The multiple is the negotiation, so the useful answer is the value at three multiples rather than one: at 2.0, $360,000 plus inventory; at 2.5, $450,000; at 3.0, $540,000. The value of your business calculator on this site shows all three, and the report tool turns them into a low, a high and a midpoint the owner can open with. The hub publishes no multiple for any trade, because a multiple published to rely on is an opinion the hub would be signing; the owner's multiple carries what the owner knows about the lease, the customers, the staff and the buyer across the table. A business net worth calculator that returns one figure has hidden the decision that made it.
A quick business valuation, and what it leaves out
A quick company valuation is the three numbers above and nothing more, and for the first conversation that is enough; what it leaves out is what a buyer will ask about next. The equipment at its agreed value, the receivables the seller keeps or sells at a discount, the debt the buyer assumes or the seller clears, the lease's term and assignment, and the cost of replacing the owner's own production, each move the price from the quick number. The Bureau of Labor Statistics' occupational wage data is where the replacement salary is read; the checklist on this site is the list of what to have ready; and the quick number is the right place to start as long as the owner knows it is the start.
What company valuation software has to show
The three inputs as the owner entered them, the earnings value and the inventory as separate lines, the value at the entered multiple and at the multiples either side, and a report that says which figures came from where, so the buyer can read the sum rather than argue with a total. Company valuation software that returns a number and a logo has done the arithmetic and hidden it. The free small business valuation tool on this site shows the working with no account; the paid plan files each valuation against the business and the date, branded and exported, so the number the owner quoted in March is on record when the broker asks in June. The Small Business Administration's guide to selling a business covers the sale itself.
Questions people ask about value my business
How do I value my business myself?
Discretionary earnings, the profit plus the owner's salary and one-off costs added back, times the multiple you were quoted, plus inventory at cost. $180,000 at 2.5 is $450,000, $486,000 with $36,000 of stock. Read it at three multiples as a range.
How much is my business worth to sell?
The value at the multiple a buyer will pay, which is the negotiation; the calculator shows the value at your multiple and the ones either side, and the report gives a low, a high and a midpoint to open with. The hub publishes no multiple.
Is a quick business valuation enough?
For the first conversation. The equipment, receivables, debt, lease and the cost of replacing the owner's own production move the price from there, and the checklist on this site lists what to have ready.