Five minutes can produce a useful first estimate of your business’s value if you have reliable financial figures. It cannot establish a guaranteed sale price: the result depends on the valuation method, the evidence behind your numbers, and assumptions about risk, future earnings, and comparable businesses.
Start with the right kind of estimate
A quick calculation is best treated as a planning range, not an appraisal. Before relying on any number, identify what it measures: a rough estimate for early planning, a broker’s opinion, or a formal valuation for a defined transaction, financing, legal, or tax purpose. Those are not interchangeable.
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The U.S. Small Business Administration recommends valuing a business before marketing it for sale and describes three common approaches: asset-based, market, and income. The Internal Revenue Service likewise recognizes those three approaches and says an appraiser should select the methods that best indicate value for the particular case.
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Asset-based approach
This approach considers business assets and liabilities. A simple starting calculation is assets minus liabilities, but the result may not capture the value of an operating company’s ability to earn income or retain customers. It is most useful when assets are central to the business’s value or when an ongoing income-producing business is not the relevant premise.
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Income approach
This approach estimates value from expected economic benefits or earning potential. The result depends on the earnings or cash-flow measure selected and the assumptions used to account for risk and future income; it is not simply a multiple that fits every company.
Market approach
This approach compares the business or ownership interest with similar businesses or transactions. Comparisons are only useful to the extent that the businesses match on relevant factors such as industry, size, geography, timing, and deal structure.
See how a five-minute SDE calculation works
One simplified market-method example uses seller’s discretionary earnings (SDE), an earnings measure that adds an owner’s salary and certain claimed expenses back to net profit. The example in a Forbes Councils/YEC article published May 14, 2020, calculates:
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- $100,000 net profit
- + $50,000 owner salary
- + $50,000 other expenses claimed as add-backs
- = $200,000 SDE
- $200,000 SDE × 2.28 = $456,000 illustrative value
The article attributes the 2.28 multiple to BizBuySell data, but the passage does not specify the transaction period or provide enough methodological detail to establish that it fits a particular industry or company. Treat $456,000 as the arithmetic in that dated example—not as a current benchmark, a universal multiple, or a prediction of what a business will sell for. Add-backs also need to be documented and justified; an expense does not become a valid adjustment merely because an owner labels it one.
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Why business value can exceed an asset total
The IRS defines fair market value as “the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts.” The relevant value therefore depends on a hypothetical exchange between informed, willing parties, rather than only on a balance-sheet total.
An operating business may also have goodwill and going-concern value. The IRS defines going-concern value as “the additional value that attaches to property because the property is an integral part of an ongoing business activity.” It includes the ability to keep functioning and generating income after ownership changes. Goodwill reflects expected continued customer patronage because of the business’s name, reputation, or another factor. These elements help explain why tangible assets alone may not represent the value of a functioning company.
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Check the assumptions that can move the number
Valuation guidance from the IRS directs appraisers to consider the company’s history and nature, economic and industry conditions, financial condition and earning capacity, goodwill and other intangible assets, comparable interests, and other relevant information. Risk, industry, and the stability or irregularity of earnings can also affect the assumptions used in an income valuation.
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- What purpose and value standard does it address?
- Does it rely on assets, historical or forecast earnings, or comparable sales?
- Which earnings measure is used, and are claimed add-backs supported by records?
- How closely do the comparables match the business in sector, size, geography, timing, and deal structure?
- What does the estimate assume about risk, goodwill, owner dependence, customer concentration, and future income?
- Is the output a planning estimate, a broker opinion, or a formal valuation for a specific use?
A calculator provider, Trustmark M&A, says its tool takes about five minutes, applies industry multiples to adjusted earnings, and fine-tunes the result for business characteristics. It also identifies customer concentration, management depth, growth trends, and financial-record quality as factors that can influence a final price. Those are the provider’s descriptions of its method and considerations, not independent validation of the calculator’s accuracy.
Choose the next step based on what you will do with the estimate
For early planning, a rough estimate can help frame questions about a possible exit and the records you may need to organize. Before marketing the business, the SBA recommends obtaining a valuation. For an actual sale, financing application, legal matter, or tax filing, use advice and valuation evidence appropriate to that decision rather than relying on a quick calculator. IRS guidance notes that appraisers exercise judgment in selecting the approaches and methods that best indicate value.
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