1. What Is Business Valuation?

Business valuation is the process of determining the economic value of a business or company. The SDE multiple method is commonly used for small businesses and represents the seller's discretionary earnings multiplied by an industry-standard multiple.

2. How Does The Calculator Work?

The calculator uses the SDE multiple formula:

Where:

• \( SDE \) — Seller's Discretionary Earnings ($)
• \( Multiple \) — Industry multiple (typically 2-4x for small businesses)

Explanation: SDE represents the total financial benefit to the owner, including salary, benefits, and discretionary expenses. The multiple varies by industry, business size, growth potential, and market conditions.

3. Importance Of Business Valuation

Details: Accurate business valuation is essential for selling a business, securing financing, estate planning, partnership agreements, and strategic decision-making. It provides an objective assessment of what a business is worth in the current market.

4. Using The Calculator

Tips: Enter your Seller's Discretionary Earnings in dollars and select an appropriate multiple based on your industry and business characteristics. Conservative multiples (2x) are for stable businesses, while aggressive multiples (4x) are for high-growth businesses.

5. Frequently Asked Questions (FAQ)

Q1: What is included in SDE?
A: SDE includes owner's salary, benefits, non-recurring expenses, personal expenses run through the business, and one-time costs that would not transfer to a new owner.

Q2: Why do multiples range from 2-4?
A: Multiples depend on industry, business size, growth potential, profitability, customer concentration, and market conditions. Higher multiples indicate better growth prospects and stability.

Q3: When is this valuation method appropriate?
A: The SDE multiple method is best for small businesses (typically under $5M revenue) where the owner is actively involved and the business is owner-dependent.

Q4: Are there other valuation methods?
A: Yes, other methods include discounted cash flow, asset-based valuation, and market comparables. The best method depends on the business type and purpose of valuation.

Q5: Should I get a professional valuation?
A: For significant transactions, it's recommended to consult with a business valuation expert who can consider all relevant factors and provide a comprehensive assessment.