Estimate what your business is worth
From ancient merchant guilds to modern M&A deals, business valuation has evolved for centuries. The revenue multiple method traces back to early trade—understanding your business worth starts here.
This is what your annual revenue or profit gets multiplied by — pick a category above, or choose "Other" to enter your own.
The "rule of thumb" multiple used by most small-business brokers today — 2 to 4x annual profit for a typical service business — has barely changed since the 1980s, even as public company valuation methods have grown far more complex.
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Business valuation is the process of determining the economic value of a company. Whether you're planning to sell, seek investors, or simply understand your company's worth, knowing how to value your business is essential.
The most common method for valuing small to medium businesses is the revenue multiple approach. This method calculates business value by multiplying annual revenue by an industry-specific multiple. For example, a consulting firm with $500,000 in annual revenue, using a 3x multiple, would be valued at $1.5 million.
The profit multiple method is similar but uses annual net profit instead of revenue. This method is often more accurate for businesses with varying profit margins, as it directly measures earnings rather than top-line revenue.
Industry multiples vary significantly across sectors. Technology companies often command higher multiples (5-10x) due to high growth potential and scalability. Retail businesses typically have lower multiples (1-3x) due to lower margins and higher operational costs. Service businesses fall in the middle (2-4x). Your years in business also matter—established businesses (5+ years) often command premium multiples due to proven track records.
While revenue and profit multiples provide a useful baseline, they don't capture all aspects of business value. Intangible assets like brand recognition, proprietary technology, skilled workforce, and customer relationships aren't reflected in these calculations. Additionally, market conditions and economic factors can significantly impact valuations—multiples may be higher during economic booms and lower during recessions.
Use this valuation as a starting point for discussions with potential buyers, investors, or advisors. The range provided accounts for variability in market conditions and buyer perspectives. For a more accurate valuation, consider engaging a professional business appraiser who can conduct a comprehensive analysis including all tangible and intangible assets.
Example: A consulting firm has $250,000 in annual revenue, has been operating for 3 years (no multiplier adjustment), and its industry multiple is 3x. Value = $250,000 × 3 = $750,000. Range: $525,000 to $975,000 (±30%). If that same firm had only been open 1 year, the multiple would be discounted by 30% to 2.1x, dropping the estimate to $525,000.
Profit multiples tend to be more accurate, since they reflect actual earnings rather than top-line sales. Revenue multiples are useful when a business has thin or inconsistent margins, or for quick back-of-envelope comparisons across similar companies.
Businesses under 2 years old carry more risk since they haven't proven they can sustain revenue, so buyers typically discount the multiple. Businesses over 5 years old have a track record, which often commands a premium multiple.
No. This gives a quick estimate using industry-standard multiples, but a certified business appraiser can factor in intangible assets, market conditions, and buyer-specific context that a simple multiple can't capture.