Business Valuation Tools Instructions

STEP 1

Sales: Enter in the top line revenues of the company for the applicable year. For the most current year, enter in your best estimate of the financial performance for year end.

Cost of Goods Sold (COGS): Enter in your cost of goods sold.

Operating Expenses: Enter in total operating expenses.

Net: Calculated by taking the Sales minus COGS minus Operating Expenses. Check to see if the calculated net matches the net income of your financial statements.

Add Backs: You can only add back expenses that are in your financial statements. If your salary is $50k and it’s a line item on your expenses, you can only add back $50k.

• Officer Salaries: You can add back one for one full time owner’s salary. If you have more than one owner working in the business you will need to adjust by adding their salary back but reducing it by the amount it would take to replace them.
• Depreciation: This includes depreciation and amortization. If you have a lot of recurring Capital Expenditures, then you should consider not including the depreciation as an add back or reducing the applicable amount.
• Interest: You should adjust appropriately for interest expenses and income.
• Other Expenses: You should include any non-operating or non-recurring expenses or income. If you’ve included capital expenses in the P&L that should be in the Balance Sheet, you can adjust for that here as well.

STEP 2

Industry: Pick the primary industry you’re in. If you are in multiple industries, you might need to break up the income and expenses and run this calculation multiple times to get a better estimate of value. You should also consider adding a size premium as well to the sum of values. This tool might not appropriate for some broad-based businesses.

Manager's Salary: Enter in the salary required for a manager to operate the business.

Earnings Trend: The selection should reflect your belief of what the trend will look like moving forward. It’s difficult to continue to grow by 20% or more per year over a long period of time.

• Declining -20%, no turnaround:
• Declining 20%, turnaround:
• Steady:
• Increasing 20%, Sustainable:
• Increasing 20%, non-sustainable:

Risk factors:

• No Employees, non-internet: Mostly, this is an indicator that the business is highly dependent on the current owner and transferability of the company is questionable. A fully automated or easily transferrable business, clients, revenues would not check off this box.
• Industry in decline: This should be based on objective industry data and should be forward looking.
• Poor Books and records: We can only value businesses based on the earnings you can prove. Poor books and records may make your business unsellable.
• <3 years in business: If you have at least 2 years of Tax Returns that clearly shows the true net of your company you could possible get financing.
• <1 year in business: These businesses are high risk and generally can’t be financed.

Upside/Low Risk Factors

• SBA Financeable: SBA can do loans of up to $5mm. They will require tax returns that can show the company can pay back any acquisition debt. Companies that show income on tax returns such that the SBA will lend on it sell for more money.
• Established Franchise: Premium franchises sell for a higher multiple for lower tier franchises and family owned businesses.
• High Growth Industry: This should be based on objective industry data and should be forward looking.
• 10+ Years in business:
• Sustainable Competitive Advantage: You should compare your competitive strategy with your competitors and alternative solutions. This generally requires some expertise to determine.

PURPOSE

You can use this to track why you did the valuation and it’s good for us to get a better idea of what people are using our tool for so we can get better.

Regardless of the reason, this business valuation calculator is an estimate of value and meant for information purposes only. It should not be used for any purposes that require a certified business valuation or analyst or any kind of legal dispute.

Back to the Business Valuation Tool.