Business Valuation Calculator

The value of a business is typically expressed as the present value of its expected future earnings, similar to how bonds or real estate are valued. This calculator uses discounted cash flow (DCF) methodology, factoring in your adjusted earnings, growth rate, risk level, and any marketability discounts to estimate what a buyer might reasonably pay today.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is widely used in business valuation because it approximates a company's operating cash flow, stripping out accounting and financing decisions. It provides a cleaner view of the core profitability available to a potential buyer.

Excess owner compensation refers to salaries or benefits paid to owners that exceed what a market-rate manager would be paid to perform the same role. This amount is added back to EBITDA because a new owner would not incur this extra cost, making the business appear more profitable on a normalized basis.

Higher risk levels correspond to higher discount rates, which reduce the present value of future earnings. For example, a high-risk business uses a 35% discount rate, while a low-risk business uses 12%. Restaurants and retail are generally considered lower risk than manufacturing or highly specialized industries.

This adjustment accounts for how easily the business can be sold. A positive discount (e.g., 20%) reduces the valuation to reflect difficulty finding buyers or liquidity constraints. A negative value would increase the valuation, which may apply if the business has unique strategic value or a strong buyer pool.

In this discounted cash flow model, setting the years to 10 approximates a perpetuity — the assumption that the business will continue generating earnings indefinitely. Beyond 10 years, the present value of individual cash flows becomes negligible at typical discount rates, so 10 years serves as a practical ceiling.

This calculator is best suited for established businesses with predictable earnings, such as service businesses, retail operations, and small to mid-size companies. It may be less appropriate for early-stage startups, asset-heavy businesses, or companies valued primarily on intellectual property or market position rather than current cash flow.

No. This tool provides an educational estimate based on discounted cash flow principles. Actual business valuations often involve multiple methods (asset-based, market comparables, income approach) and should be performed by a qualified business broker, CPA, or certified business appraiser, especially for sale, acquisition, or legal purposes.