Small business valuation: the four numbers a buyer rebuilds before they believe yours
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Every figure here comes from the figures you enter and the method stated beside it: your document count, your own hourly worth, your expected price. This site publishes no valuation, no tax position and no legal opinion; what a clause means for your deal is your solicitor's and your accountant's.
Almost every argument about what a small business is worth is really an argument about one of four things: what the business actually earns once the owner's own pay and personal costs are taken out, how much of that earning survives the owner leaving, what a buyer has to put in on day one to keep it running, and what comparable businesses have really changed hands for. The multiple everybody talks about is applied at the end and moves far less than the four inputs do. This page is about the inputs. It does not tell you what your business is worth, which is your own valuer's job and not a page's.
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What people mean when they say value my business
Usually one of three different questions. What would a buyer pay today, what would a lender or a court treat it as worth, and what do I need it to be worth to retire on. They have different answers and only the first is a market question. Deciding which one you are asking changes who you should be talking to, because a figure prepared for a divorce, a gift or a lender is prepared to a standard and a purpose that has nothing to do with a sale price.
Rule of thumb business valuation, and why the multiple is the last step
A rule of thumb is a multiple of earnings or of revenue drawn from what similar businesses sold for. It is a sanity check, not a method: the same trade carries a wide range, and where a particular business sits inside that range is decided by the things a rule of thumb cannot see, which are customer concentration, owner dependence, the state of the records and whether the earnings are repeatable. Applying a mid-range multiple to an un-normalised profit figure produces a number that feels precise and is not.
Small business valuation formula multiples, and where the range comes from
The formula is short. Normalised earnings, times a multiple, plus or minus the balance sheet items that transfer. The work is entirely in the first and third terms. Normalising means adding back the owner's own compensation, one off costs and anything personal running through the business, and taking out anything a buyer would have to start paying for. The balance sheet term is what is included: working capital at a normal level, the equipment, the stock, and what happens to cash and debt at completion.
The four numbers, written down before anybody asks
Normalised earnings for the last three years with every adjustment listed and evidenced. Revenue by customer, so concentration is visible rather than discovered. A list of what the business depends on the owner for, honestly written. And the working capital the business actually needs to run, month by month, because that is the number most often argued about at completion and the one sellers most often have not measured.
Will it do what you need for Small business valuation?
Tell us where you are in selling your business and what you are trying to keep track of.
Small business valuation: common questions
How to determine the value of a small business?
Start from normalised earnings, not from the profit on the tax return. Add back the owner's own pay and any personal costs, take out anything a buyer would have to pay for that you do not, and do it for three years so a trend is visible. Then look at what comparable businesses in the same trade actually sold for. That gives a range. The range narrows on evidence, not on argument.
How much is my business worth to sell?
Nobody can answer that from a page, and any site that gives you a figure is guessing at the inputs. What a page can tell you is which inputs decide it and which of them you control. Owner dependence and customer concentration are the two that move the number most and are the two most improvable in the year before a sale.
Is a quick business valuation worth anything?
As a starting point, yes. As a basis for a decision, no. It tells you roughly which order of magnitude you are in, which is genuinely useful early, and it cannot see the adjustments that decide where in the range you land. Treat it as the reason to have the real conversation rather than as a substitute for it.
What does a quick company valuation leave out?
The normalisation, almost always. A quick company valuation takes the profit as reported and applies a multiple, so it misses the owner's own pay, the one off costs, the personal items and the working capital requirement. Those are the adjustments a buyer's adviser makes first, and they can move the answer a long way in either direction.
How to value a small business based on revenue?
Only where earnings are not the right measure, which for most established small businesses they are. Revenue multiples are used where a business is growing fast and spending its margin on that growth, or where margins are so standard across a trade that revenue is a proxy for earnings. Applied to an ordinary owner operated business they usually flatter it.
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