How to Value Your Small Business

Calculate your business value using asset, income, and market approaches with real formulas and benchmarks.

1. Calculate asset-based value. Add up all assets at fair market value, subtract all liabilities. This gives you book value — your floor price if you liquidated tomorrow. Adjust asset values to current market rates, not what you paid. Service businesses often show minimal asset value; manufacturing or retail businesses typically show more.
2. Apply income multiple method. Take your annual net income and multiply by 3-5x for most small businesses. Use EBITDA (earnings before interest, taxes, depreciation, amortization) if you want to show higher numbers to buyers. Stable, recurring revenue commands higher multiples; seasonal or project-based businesses get lower multiples.
3. Research market comparables. Find recent sales of similar businesses in your industry and size range. Check business broker listings, industry reports, or hire an appraiser for comparable data. Apply the same revenue or EBITDA multiples those businesses sold for to your numbers.
4. Adjust for business-specific factors. Subtract 20-40% if the business depends heavily on you personally. Add 10-20% for strong systems, documented processes, or long-term contracts. Factor in customer concentration — if one customer is over 20% of revenue, that's a discount.
5. Weight the three approaches. Asset value sets your floor. Income multiples reflect earning power. Market comparables show what buyers actually pay. Weight income method highest for profitable, growing businesses. Weight asset method highest for declining businesses or those with significant hard assets.
6. Test with cash flow analysis. Calculate what annual cash flow the business generates for an owner-operator versus an absentee owner. Multiply by 4-6 years to see if your valuation makes sense from a buyer's return perspective. If numbers don't work at 15-25% annual returns, adjust downward.