How Business Valuation Calculator works

1. Scope

The Business Valuation Calculator produces a directional valuation range from three small-business methods: revenue multiple, SDE multiple (seller's discretionary earnings), and EBITDA multiple. It outputs a low / mid / high range for each method plus a blended average, from user-supplied multiples and industry-typical bands. This is an illustrative planning estimate, not a formal appraisal. Regulated transactions — acquisitions, estate planning, equity settlements — require a credentialed appraiser (CVA, ABV, ASA).

2. Inputs and outputs

Inputs: six numeric fields — annual revenue with its revenue multiple, SDE (or owner-earnings proxy for smaller businesses) with its SDE multiple, and EBITDA with its EBITDA multiple. Three optional preset buttons (SaaS, Services, Product) fill in starting multiples; there is no separate industry, growth-rate, or margin-quality input. Outputs: a low / mid / high range for each method supplied (revenue, SDE, EBITDA), plus a blended low / mid / high that is the simple average of the methods present.

Engine source: src/lib/business-valuation-calculator/engine.ts.

3. Formula / scoring logic

# Each method produces its own low / mid / high, using a spread on the
# multiple. Spread = 25% of the multiple for Revenue, 20% for SDE and
# EBITDA. The low multiple is floored at 0.1.

revenue.mid  = annual_revenue * revenue_multiple
revenue.low  = annual_revenue * max(0.1, revenue_multiple - 0.25 * revenue_multiple)
revenue.high = annual_revenue * (revenue_multiple + 0.25 * revenue_multiple)

sde.mid      = SDE * sde_multiple
sde.low      = SDE * max(0.1, sde_multiple - 0.20 * sde_multiple)
sde.high     = SDE * (sde_multiple + 0.20 * sde_multiple)

ebitda.mid   = EBITDA * ebitda_multiple
ebitda.low   = EBITDA * max(0.1, ebitda_multiple - 0.20 * ebitda_multiple)
ebitda.high  = EBITDA * (ebitda_multiple + 0.20 * ebitda_multiple)

# Blended range = simple average of each present method's low / mid / high
blended.low  = average(method.low  for each method present)
blended.mid  = average(method.mid  for each method present)
blended.high = average(method.high for each method present)

# Typical small-business multiple bands (editorial starting points):
#   revenue_multiple:  0.5x – 3x  (SaaS often 3x–10x at top of cycle)
#   sde_multiple:      1.5x – 4x  (BizBuySell-typical)
#   ebitda_multiple:   3x – 8x    (profitable small businesses)

For SaaS and micro-SaaS, revenue multiples are anchored to public data from Bessemer's Cloud Index and marketplace transaction data from MicroAcquire/Acquire.com (for < $10M ARR).

4. Assumptions

• Three-method blend. Revenue-multiple is the simplest and least accurate. SDE-multiple fits owner-operator businesses under $5M revenue. EBITDA-multiple fits growing businesses with normalised management compensation.
• Multiples are inputs, not fixed. The tool seeds an industry-typical range; the user is expected to refine based on growth rate, margin profile, customer concentration, and cycle position.
• No control / marketability discounts. Minority interests trade at a discount (typically 15–30% for lack of control plus 15–30% for lack of marketability). The tool does not apply these.
• Normalisation is the user's responsibility. SDE and EBITDA should be cleaned of one-time charges, owner-above-market compensation, and non-arm's-length transactions before entry.
• No DCF. Discounted-cash-flow valuation requires cash-flow projections and a defensible discount rate — out of scope for a ballpark tool.

5. Data sources

• Bessemer State of the Cloud 2024 — public-SaaS revenue multiples.
• Damodaran — EV/EBITDA multiples by industry (NYU Stern).
• BizBuySell Insight Reports — main-street SDE multiples by sector.
• Acquire.com (formerly MicroAcquire) — aggregate micro-SaaS transaction data.

6. Known limitations

• Not a formal appraisal. For acquisitions, tax, estate, or litigation purposes, you need a credentialed valuation professional (NACVA CVA, AICPA ABV, ASA). The tool is planning-only.
• Comparable-company data is noisy for private small businesses. Public multiples reflect liquidity premiums and disclosure quality that private-company comps lack. Apply a 20–40% discount when using public multiples for private-company analogies.
• Cycle-sensitivity. SaaS multiples compressed ~50% between 2021 and 2023. A stale multiple anchor can produce a 2× error.
• No distressed-business framing. Businesses with declining revenue, customer concentration, or regulatory overhang trade at meaningful discounts the tool does not model.
• No deal-structure modelling. Stock vs asset deals, earnouts, seller notes, and non-competes all move effective price meaningfully — handled in LOI/SPA drafting, not here.

7. Reproducibility

8. Change log

• 2026-04-24methodology page first published. Explicit statement that output is a planning estimate, not a formal appraisal.

Worked example

Run live against the same engine this site ships (/engines/business-valuation-calculator.js). The inputs and outputs below are recomputed on every build and independently re-verified in CI — they are never hand-authored.

Frequently asked questions

What does the Business Valuation Calculator produce?

It produces a directional valuation range from three small-business methods — revenue multiple, SDE multiple (seller's discretionary earnings), and EBITDA multiple — outputting a low / mid / high blend from user-supplied multiples and industry-typical bands.

Is this a formal appraisal?

No. It is an illustrative planning estimate, not a formal appraisal. Regulated transactions — acquisitions, estate planning, equity settlements — require a credentialed appraiser (CVA, ABV, ASA).

Can I verify it with a worked example?

Yes. With annual_revenue = $1,000,000, SDE = $350,000, EBITDA = $280,000 and multiples revenue 2.0×, SDE 3.0×, EBITDA 5.0×: revenue_value = $2,000,000, sde_value = $1,050,000, ebitda_value = $1,400,000. Each method gets a ±25%/±20% band and the blend averages them: blended range $1.15M – $1.81M with mid ≈ $1.48M.