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Business Valuation Calculator

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Valuation data last updated: October 2024

Our business valuation calculator was developed by experts in the M&A and private equity space. With access to proprietary data on valuation multiples in 29 industries, it can give you an accurate estimate of a company’s valuation.

If you are seeking a professional valuation or an advisor, please contact us and we can make a referral.

Business Valuation Calculator

Understanding Business Valuation Factors

Below is an explanation of each factor in the calculator:

  • EBITDA: EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization, which is essentially your net profit before considering tax and loan-related matters. It’s a measure of how much free cash flow your business creates, and is therefore the central figure in your valuation. Most buyers apply a multiple to your company’s EBITDA to determine its valuation, then subtract addbacks such as excess owner compensation and personal expenses.  
  • Industry: The value of your business depends, in part, on potential acquirers’ view of the expected growth of your industry in the overall economy. For example, the high expectations around generative AI in the last few years mean that businesses that create AI chips or help businesses implement AI are likely to receive higher valuations. 
  • Recurring Revenue: Revenue that is expected to continue automatically unless proactively cancelled is preferred by acquirers because it’s more likely to be retained. It’s contrasted with non-recurring (one-time revenue), and sometimes with recurrent revenue, which is revenue that is likely to continue from the same customer base, but isn’t automatic or contract-bound. The latter is a bonus, whereas recurring revenue is the ideal case.  
  • Revenue Growth Over Last 12 Months: Growth in revenue over the trailing year is especially important to acquirerers, as they are seeking an up-to-the-minute picture of the business’s trajectory. Some acquirers will look further back, but typically no more than 24 months.
  • Key Employee Turnover: A risk acquirers face when taking over a business is that essential employees will leave, destabilizing the company. While PE firms will typically replace many key staff members, they prefer to do so on their own timeline. Thus, knowing that important team members and managers are secure is an important assurance.
  • Profit Margin: A business’s ability to provide acquirers and their investors with cashflow is paramount to the deal. Therefore, businesses with better margins are more sellable.
  • Customer Concentration Risk: Buyers of a business need reassurance that losing one client, or a few clients, will not destabilize the business. A good rule of thumb is that if a single client makes up over 20% of your revenue, or 2-3 clients make up over 40% of your revenue, your business is much less sellable.
  • Clear Market Leader: There is a premium attached to companies that are the market leader by sales or reputation, as it provides buyers with greater security that the business will continue to perform.
  • Significant Competitive Advantage: Similar to being the market leader, any competitive advantage that stifles competition (e.g. patents or exclusive agreements with major distributors) provides buyers with greater protection for their investment.

A Note on Valuation Multiples

Since a multiple of your business’s EBITDA typically determines its valuation, the definition of EBITDA becomes particularly important—and all acquirers define it slightly differently. An acquirer may wish to place certain expenses that aren’t on the books (such as owner salary or quasi-personal expenses) back on the books, lowering your EBITDA. You should be aware of how an acquirer defines EBITDA, rather than simply applying the multiple to your own conception of EBITDA.

Evan Bailyn

Evan Bailyn is a best-selling author and award-winning speaker on the subjects of SEO and thought leadership. Contact Evan here.