Value of My Business Calculator

Business Valuation Calculator (SDE Method)

Use this calculator to get an estimated value of your business based on the Seller's Discretionary Earnings (SDE) method, a common approach for small to medium-sized businesses.

Annual Revenue ($):

Cost of Goods Sold (COGS) ($):

Operating Expenses (Excl. Owner's Comp) ($):

Owner's Salary/Compensation ($):

Owner's Perks/Benefits ($):

Industry Multiple (e.g., 2.5 to 4.5):

Estimated Valuation Results:

Enter your business financials and click "Calculate" to see the estimated value.

Understanding Your Business Value: The SDE Method

Determining the value of your business is a critical step, whether you're planning to sell, seeking investment, or simply want to understand your company's worth. While complex valuations often involve detailed financial modeling, the Seller's Discretionary Earnings (SDE) method offers a straightforward and widely used approach, especially for small to medium-sized businesses.

What is Seller's Discretionary Earnings (SDE)?

SDE represents the total financial benefit an owner-operator receives from a business. It's a key metric because it normalizes the earnings to reflect what a single, full-time owner would earn from the business, regardless of how the current owner structures their compensation or personal expenses through the business. This makes it easier for potential buyers to compare different businesses.

The formula for SDE typically starts with Net Profit (or EBITDA) and then adds back certain expenses that are considered "discretionary" to the owner. These usually include:

Owner's Salary/Compensation: The salary, wages, or draws the owner takes from the business.
Owner's Perks/Benefits: Any personal expenses paid by the business that benefit the owner (e.g., company car for personal use, personal travel, health insurance premiums, excessive entertainment expenses).
Non-recurring Expenses: One-time costs that won't be incurred by a new owner (e.g., legal fees for a specific lawsuit, significant one-off repairs).
Interest Expense: Often added back as it relates to financing structure, not operational performance.
Depreciation & Amortization: Non-cash expenses that don't reflect actual cash outflow.

Our calculator simplifies this by focusing on Annual Revenue, Cost of Goods Sold (COGS), Operating Expenses (excluding owner's compensation), Owner's Salary, and Owner's Perks to arrive at SDE.

The Role of the Industry Multiple

Once SDE is calculated, it's multiplied by an "industry multiple" to arrive at an estimated business value. This multiple is a factor that reflects various aspects of the business and its market. It's not a fixed number and can vary significantly based on:

Industry: Some industries inherently command higher multiples due to stability, growth potential, or recurring revenue models.
Business Size and Growth: Larger, faster-growing businesses often receive higher multiples.
Profitability and Cash Flow: Businesses with strong, consistent SDE and healthy cash flow are more attractive.
Risk Factors: High customer concentration, reliance on a single owner, outdated technology, or intense competition can lower the multiple.
Market Conditions: The overall economic climate and demand for businesses in your sector play a role.
Transferability: How easily the business operations, customer relationships, and intellectual property can be transferred to a new owner.

Typical SDE multiples for small businesses can range from 2 to 5, but this is a broad generalization. Consulting with a business broker or valuation expert can help you determine a more precise multiple for your specific business and industry.

How to Use the Calculator

Annual Revenue: Enter your business's total sales for the most recent fiscal year.
Cost of Goods Sold (COGS): Input the direct costs associated with producing your goods or services.
Operating Expenses (Excl. Owner's Comp): Include all other regular business expenses like rent, utilities, marketing, employee salaries (excluding the owner's), insurance, etc.
Owner's Salary/Compensation: Enter the total amount the owner pays themselves from the business.
Owner's Perks/Benefits: Add any personal expenses or benefits the business pays for the owner (e.g., personal vehicle expenses, personal travel, club memberships).
Industry Multiple: Provide an estimated multiple for your industry. If unsure, a range of 2.5 to 3.5 is often used as a starting point for many small businesses, but research specific industry benchmarks.

Important Considerations

This calculator provides an estimate based on the SDE method. It's a useful starting point but has limitations:

Simplification: Real-world valuations are more nuanced, considering assets, liabilities, market trends, competitive landscape, and future projections.
Multiple Accuracy: The accuracy of the result heavily depends on the industry multiple you input. An incorrect multiple can lead to a significantly skewed valuation.
Not for All Businesses: The SDE method is best suited for businesses where the owner is actively involved in operations. For larger businesses with management teams, EBITDA multiples are often preferred.
Future Performance: This method primarily looks at historical performance. A comprehensive valuation would also consider future growth potential and risks.

For a precise and defensible business valuation, it is always recommended to consult with a professional business appraiser or M&A advisor. They can conduct a thorough analysis, apply multiple valuation methodologies, and provide a detailed report tailored to your specific business and objectives.