If you were to sell your small business today, how much would you get for it? Not sure?

Understanding how much your business is worth is important, even if you have no intention of selling any time soon.

Knowing your valuation helps you understand your competitive advantage, your market share, and informs your approach to raising funds and scaling up. Plus, it can be simple to calculate.

When you should value your small business (and what it means)

It's helpful to always have a general idea of what your business is worth, but a business valuation is obviously most helpful if you're looking to sell your business. However, it can also help you secure different funding options since it lets you know what the equity in your business is worth so you can confidently pitch investors and other stakeholders, or even secure affordable loans.   

Why you need to know how much your business is worth

Even if you don’t have plans to sell or a burning need for capital, things can change and it;s always better to be prepared than to poorly estimate the value of your business.Knowing your business’s valuation is also useful for buying out partners, offering employees equity, or any other reshuffle of shares. 

While your business value has many uses and applications, it:

  • Indicates your business’ financial health
  • Demonstrates your impact to funding providers and lenders so you can get better rates and see less dilution
  • Helps you develop your financial strategy 

How to value a small business

It can never hurt to learn the basics of the business valuation process (basically the worth of your business). You have two options when you’re approaching your business valuation. You can take it on yourself, or you can hire a professional appraiser or accountant to do it for you. 

Although this blog will help you understand more about what goes into valuing a small business, we would recommend you also speak to a professional who takes the time to understand your unique set of circumstances!

If you choose to calculate it on your own, make sure you stay objective and don’t let your emotions influence your valuation. You’ll need to explain this value to outside stakeholders like investors or buyers so make sure you’re able to back up your reasoning. 


Start by getting your financial documents together. This includes profit loss statements, tax filings, and balance sheets all from the last 3-5 years. You’ll also want to prepare supplemental documents about your business such as licenses and deeds. 

While it’s important to prepare all tangible assets, don't forget to identify your intangible assets as well. These also add value to your business and can include copyrights, patents, or even marketing assets like the audiences you’ve built through email lists or social media accounts.

Work out profitability 

Buyers want to know how much they’ll make if they purchase your business. To figure that out, you can calculate net profit and then account for the future revenue with multiples and profitability adjustments.

Multiples are used to estimate the longevity of your business. For small businesses, multiples typically range from 2-10 but your exact multiple will depend on the risk and size of your business. After you determine the most fitting multiple for your business, multiply it by your net profits.

Since you won't generate the exact same profits year to year, you’ll need to adjust your future profits for potential gains or losses. Take a look at your financial history, expected market growth, and relevant comps. This can be a quick and easy process for small businesses with well-documented  finances.   


Calculate the value

Now it’s time to do the math! 

First, estimate net income by subtracting all your expenses from your gross profits. Then, determining your multiple involves doing some research and a little guesswork. To start, you’ll want to consider the size of your business, your financial history, and the multiples similar companies have sold for. 

For example, if a company in your industry, of your same size and risk, sold for a multiple of 3, you could estimate to sell for a multiple of 3 or above depending on your potential for growth. 

Next, adjust for growth using your own historical growth and the growth of your market. You’ll want to consider if your market is stable or growing, and how that will impact the growth opportunity for your business. 

Compare your growth rate to the market to see exactly how your business compares to others in the industry. Lastly, add growth projections by applying your growth rate to yearly net profits. 

Check your market valuation

Ultimately, your business is only worth what the market will accept. Listen to what investors and buyers are saying about your valuation and, if their points are valid, you may need to make adjustments.


Small business valuation methods 

You can calculate the value of your business using four different valuation methods and compare your results to get the most accurate calculation. Give it a try yourself, or get some help with anything from final calculations to organizing your finances. 

Adjusted net asset method

This method uses both your tangible and intangible assets to estimate the value of your business. This includes equipment, property, inventory, patents, copyrights, and more. 

The adjusted net asset method calculates the difference between the current market value of your assets and liabilities. To get started with this method, list your assets and their current value. For the most accurate results, you can estimate how much your depreciated assets would sell for right now.  

This works best for businesses with a lot of assets and not a lot of revenue. It can also help keep track of spending even if you're not looking to sell yet.


How to value a business based on revenue

With the two following methods, your business value is determined by estimating the income your business will generate in the future.  

Capitalization of earnings 

This first income method uses your cash flow, ROI, and expected future value to calculate the value of your business. Bear in mind this method doesn’t account for fluctuations in business performance so it’s best used for established businesses with steady profits.    

Discounted cash flow

This method determines the present value of your future cash flow. You can calculate your business's cash flow forecast and adjust it based on the risk involved to sell your business. Since this method accounts for future fluctuations in performance, it's best for startups or businesses with rapid growth.  

Market-based valuation 

This last method determines the value of your business based on your net income and sales of similar businesses in your industry, giving you a realistic value for the market.  

Multiply net profit by the most fitting multiple for your company. You’ll assign a multiple to your small business from 2-10, depending on the risk and size of your business. Then you must account for profit growth or loss over the coming years, and take a look at historical profits or competitors to align your value with the current market.  

This method is great for any business, especially those growing quickly, but you’ll need access to industry information on comps in your market. To get this information, you may need to hire an appraiser who will have access to market databases and other information unavailable to the public. 

How to write your business financing plan

Your growth plans and makeup of your business will determine the valuation method you choose. Having a financial business plan will help you assess opportunities and opportunity costs as you scale and grow - but, more importantly, the valuation process will give you a good idea of your business’ strengths and weaknesses. 

 Here is how you can get started on a business financing plan of your own: 

Review strategic plan

Identify how you plan to grow and generate profits. If you don't have one already, establish a reliable business model you can use to help plan for the future. Create realistic goals and expectations for what you need to grow. Start thinking towards the future, will you need more employees, work space, or funding? If so, when will you need it? 

Develop financial projections

Financial projections help manage some of the uncertainty of the future by giving us something to expect. You can use financial projections to determine how much profit you’re generating, and how much you’ll continue to generate in the future. This information is extremely useful for planning rounds of funding. Financial projections help you determine the best times to raise capital and just how much you’ll need.  

Arrange financing

If you have good credit and steady revenue you may be able to find an affordable unsecured loan from a bank or credit union. If you have poor credit, or haven't been in business for long, you still may be able to find secured or cash flow loans but you’ll likely pay a lot in interest and fees.

How to improve the value of your small business

The value of your business is not set in stone and there are many steps you can take to improve it.First you should ensure that you have a reliable methodology and work with a third party on a range of approaches to see how estimates fluctuate. Hire a professional to help calculate the most accurate valuation and identify the best qualities of your business, and the worst too. 

With this information, you can analyze your business to see what needs improvement, and what should be left alone. Through this lens, it may be easier to approach difficult and complex initiatives such as driving more customers, increasing revenue per customer, or reducing churn.Additionally, you’ll need to find value beyond just the numbers and financial information. As we mentioned, intangible assets have value and so do your processes and systems put in place to help run your business. Things like an easy transition of ownership, low turnover, and a stand-out team are all valuable signals to a buyer or investor.  

Now that you’re familiar with the small business valuation process, decide who you need to hire and which methodologies would work best for you. No matter what plans you have for your business, make it a habit to calculate your value regularly. Having an accurate and up-to-date business valuation will prepare you for opportunities and help you work around pitfalls.

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