Business Valuation Calculator

Type of Business
Last 12 Months Sales ($):
Last 12 Months Profits + Owner's Salary ($):
Business Value Based on Sales:
Company Value Based on Profit + Salary:

Business Valuation Calculator

    A business valuation calculator is a useful tool by which we try to determine whether we can afford to buy a company or, on the other hand, whether the company is worth its asking price. With our business valuation calculator, we can determine how much our company is worth. The appropriate data is simply filled in and we get an estimate of how much we could realistically sell the company for.

    It is necessary to follow the next steps:

  • Choose the business of the company you want to buy or sell. If there is no exact industry, we need to choose the closest match. This is very important because the multiplier used by the calculator for the final assessment will differ depending on the activity to which the job belongs;

  • In the last 12 months sales (e.g. for 2020.) Enter business sales during the last 12 months. We find this data by looking at the latest income statement. A sale is an income that a company makes before deducting any expenses;

  • Profit in the last 12 months + owner’s salary Profit is the income that we reduce by expenses. This number can be found in the latest profit and loss statement of the company. We also add the owner’s salary before entering this number into the calculator;

  • The result will be automatically calculated when all the inputs are valid.

    The output fields of the Business Valuation Calculator are the following 2 fields:

  • Business value based on sales. This calculator gives us an approximate value for our business by taking the annual sales and multiplying it by the appropriate industrial multiplier.

  • Value of the company based on profit + salary of the owner. This calculator of ours also gives us an approximate value for our business by taking the annual profit and multiplying it by the appropriate industrial multiplier.
    There is always a mismatch between business value based on sales and business value based on profit. These two numbers give us an approximate range of potential values for our business. If it is a small company, this number will be more accurate because the company can have a lot of sales, but also a lot of operating costs. So the ultimate profit potential of the company is quite low.

    There are several formulas and methods for valuing a company, and which method is the most reliable will depend on the annual income of the company, as well as on how much data is available. In addition to multiple annual sales and annual profits, which you enter into our calculator, business owners can consider other methods such as market-based and asset-based valuation approaches.

Business valuation = Annual sales × industry multiple

What does business evaluation mean?

    Assessing our business is very important for several reasons. The first is because it is important to us for tax reporting, then because of raising capital, as well as because of the implemen- tation of the ownership plan for the shares of employees. Business valuation is important to us so we can know exactly how much our business is worth. In addition, with this assessment, we can later sell our company and get a pension.

How to calculate the value of our company?

    There are various ways to calculate how much our business is worth, or how much our company is worth. Each of the methods for evaluating our business has its principles and procedures according to which it performs calculations, but in essence, all of them have the task of finally evaluating our business. All of these methods ultimately boil down to a simple assessment of how much our business and business are worth.

    A large number of factors affect the determination of business value. These include financial strength, ownership or management strength, historical performance, forecasts, and future pro- jections, industrial progress and trends, competition, market position, and many other factors.

    The two most common business valuation formulas can be recalculated either through annual sales or annual profits, and then multiplied by the industrial multiple. Both methods are good for accurately valuing our business.

Methods of determining business valuation

    The four basic methods for determining the value of a company are:

  • Assessment of assets:
    This asset-based approach focuses on the net asset value of the company, and it is obtained when we subtract total liabilities from total assets. Asset valuation as a method of determining the value of an enterprise can play an integral role in planning a sale or liquidation, where it needs to be adjusted in a way that reflects the market value of assets and liabilities.

  • Discounted cash flow:
    This is a method, which is much more complex to say since it is based on future or expected cash flows. To determine the present value of these future cash flows, we use the discount rate to calculate the discounted cash flow. If the discounted cash flow is above the current cost of the investment, then that will mean that positive returns can occur. Since this method is based only on estimating future cash flows, there are some limitations.

  • Earnings / Income:
    This method is based on estimating our business through the flow of income over some time and then adding a multiplier to it. The multiplier differs depending on whether it is an industry or an economic environment. This salary multiplier is mainly used to more accurately predict future financial success. With this method, we adjust the price-earnings ratio (P / E) to take into account current interest rates.

  • Market comparison:
    This is the simplest method, market-based estimation multiplies the share price of a company by the total number of shares. Although this is the simplest method, it becomes a challenge since individual companies are owned by individuals and it is not easy to get public information about the sale of similar companies.

    Business assessment methods and formulas are very useful and help us a lot whenever possible, but it is very important that in addition to them for a particular business or company, we take into account the geographical location and the impact it could have on a potential buyer.

    We as business owners may have a general idea of how much our business is worth, but a formal assessment of the business will help us determine what its real value is. No matter what our intentions are and what we plan in the future, this is a process that every business owner should get involved in from time to time. In the meantime, these business valuation methods can help us build and protect what we have already achieved and done.

    Factors that are important for the business assessment of our business:

  • Net profit;
  • Growth trends;
  • Website traffic (if relevant to your business model);
  • Age of work;
  • Online and offline sales network;
  • Business model;
  • Niche;
  • Competitors;
  • Company assets.
    The value of a business appraisal using a Business Valuation Calculator and getting the right value can be helpful to buyers, sellers, brokers, and other clients who need a quick appraisal. Experts in this field are needed for a more detailed assessment.

    A company valuation expert can be extremely helpful to sellers to get the best price for their business while ensuring that the selling price is based on very strong data. To need a business valuation expert depends on many different factors, including the size of the company, the complexity of its business, and the industrial and market factors that affect its growth.

Tangible assets concerning intangible assets

    Although tangible and intangible assets are not included in our Business Valuation Calculator they are an important critical part of the business valuation puzzle. Tangible assets, such as e.g. commercial real estate, equipment, and inventory, can greatly increase the value of the company; and companies that lack such tangible assets may have a lower value compared to other companies.

    When it comes to intangible assets, it is difficult to set a price for them, but they need to be valued. An accurate assessment of intangible assets will help us determine the price for our business while playing a significant role in the type of financing opportunities that a potential buyer may have.

Recommendations for sellers

    If, as a business owner, we want to assess our business and the value of the company so that we can sell it, we can learn ways to maximize the selling price. We have three main tips that can help us maximize the value of your business, and these are:

  • It is important to prepare for the sale. We start with the preparations long before we put our business and company up for sale. We must review and edit business books. Edit books and make sure that there are no errors in accounting or reporting.
    This is a situation that can slow down the sales process and make it difficult for us to maximize the value of the company. The fewer things we make that look wrong when analyzing our business, the easier it will be to close and even sell well.
    Also, when we are finally ready for the sale, we must make sure that we have the correct documentation ready before we contact the broker about the business. This can speed up our process and give the broker more confidence to be able to count on our readiness when we need to provide them with more information later. What are the documents that we as business owners should have ready:
    • (a) 2+ years of business tax return;
    • (b) what is our profit and loss account (current gain and loss);
    • (c) current balance sheet.

  • It is important to use a business broker. Using a broker is very important because it can help set the value of our business not only to an acceptable level but could maximize the value of our sales. Brokers can generally get much higher sales amounts than we can get ourselves.

  • It is important not to let our emotions affect sales. Our company and business are very important for us, we have invested all our energy, heart, and soul to be as good as possible and in the place where it is today. But the market is the market and we have to take that into account when we decide to sell our company. Because it gets the value dictated by the market the moment we decide to sell. We need to consider performance, industry, and the current economy. Here we have to put emotions aside.
    The three suggestions when buying a company and business are:

  • It is important to find an industry with potential;
  • It is important to seek financing from the seller;
  • Hire a business broker.