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 blend 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: annual revenue, SDE (or owner-earnings proxy for smaller businesses), EBITDA, industry (to seed multiples), and optional growth-rate and margin-quality adjustments. Outputs: revenue-multiple value, SDE-multiple value, EBITDA-multiple value, and a blended low / mid / high range.

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

3. Formula / scoring logic

# Three methods, user-supplied or industry-seeded multiples
revenue_value   = annual_revenue * revenue_multiple
sde_value       = SDE            * sde_multiple
ebitda_value    = EBITDA         * ebitda_multiple

# Blended range — take the spread across methods
low             = min(revenue_value, sde_value, ebitda_value)
high            = max(revenue_value, sde_value, ebitda_value)
mid             = average(all non-zero inputs)

# Typical micro-SaaS / small-business bands (editorial):
#   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.