The business valuation calculator above runs three of the most widely used estimation methods at once — a revenue multiple, an EBITDA multiple, and a five-year discounted cash flow — and shows all three results together rather than picking one and presenting it as the answer. That side-by-side view is the point. Any single method produces a confident-looking number; three methods produce a range, and the range is closer to how businesses actually change hands.
Arb Digital builds websites and acquisition programmes for owner-managed businesses, and valuation comes up constantly: before a sale, before raising money, when bringing in a partner, or simply as a way of tracking whether the work is compounding into something worth more each year. This page explains what each method measures, where each one breaks, and why the spread between them matters as much as the midpoint.
What This Business Valuation Calculator Does
Enter annual revenue and a revenue multiple to get the first estimate. Enter adjusted EBITDA and an EBITDA multiple for the second. The third is a discounted cash flow model: it converts EBITDA into free cash flow using the conversion percentage you set, grows that cash flow for five years at your growth rate, discounts every year back to today at your discount rate, adds a terminal value for everything beyond year five, and sums the result.
The headline output is a range from the lowest to the highest of the three, with the midpoint shown beneath it and the spread expressed as a percentage of that midpoint. A comparison bar shows the three methods against each other so you can see instantly which one is doing the heavy lifting in your assumptions.
How to Use It
- Enter annual revenue and EBITDA. Use trailing twelve months rather than a calendar year if the business has changed materially. Adjust EBITDA for owner salary above or below market rate and for genuinely one-off costs.
- Set your multiples. These must come from comparable transactions in your sector and size band. A multiple borrowed from a listed company in a different industry will produce a confident and meaningless number.
- Set growth and discount rates. Growth is what you can defend from evidence. The discount rate reflects how risky the cash flows are — smaller and more concentrated businesses carry higher rates.
- Set EBITDA to cash conversion. The share of EBITDA that survives tax, capital expenditure, and working-capital movements to become actual free cash flow.
- Read the range, not the midpoint. Then change one input at a time to see which assumption the valuation is most sensitive to.
The Formula / How It's Calculated
The revenue method is Value = Annual Revenue × Revenue Multiple. At $2,000,000 of revenue and a 1.5x multiple, that is $3,000,000. The EBITDA method is Value = EBITDA × EBITDA Multiple, or $400,000 × 4.5 = $1,800,000. The same business, two methods, a difference of $1.2m.
The DCF method works differently. Free cash flow in year one is EBITDA × conversion × (1 + growth). Each subsequent year grows at the same rate. Every year is discounted by dividing by (1 + discount rate) raised to the power of the year number. A terminal value is then calculated with the Gordon growth formula — final-year cash flow × (1 + terminal growth) ÷ (discount rate − terminal growth) — and discounted back over the same period. Adding the five discounted cash flows to the discounted terminal value gives the enterprise value estimate.
Why the Three Methods Disagree, and What That Tells You
Each method answers a different question. A revenue multiple asks what buyers currently pay for a stream of sales in this sector, regardless of whether those sales are profitable. An EBITDA multiple asks what buyers pay for a stream of operating earnings. A DCF asks what the future cash the business produces is worth today, given the risk of not receiving it.
When the revenue method comes out far above the EBITDA method, it usually means margins are below what the multiple assumes — the business is large in sales terms but not yet in earnings terms. When DCF sits far above both, the growth rate or terminal assumption is doing the work, and small changes to either will move the result substantially. Reading the disagreement is more informative than averaging it away.
Adjusted EBITDA: The Number That Decides the Price
In owner-managed businesses, reported EBITDA rarely reflects what a buyer would inherit. A founder paying themselves below market rate flatters earnings; one paying themselves well above it depresses them. Personal costs run through the company, one-off legal fees, related-party rent above or below market, and discontinued product lines all get normalised out in a process usually called adjusted or normalised EBITDA.
Because the multiple magnifies it, every dollar of adjustment matters far more than a dollar of revenue. At a 4.5x multiple, a $50,000 adjustment moves the valuation by $225,000. This is also why adjustments are the most contested part of any transaction — buyers scrutinise every add-back, and the ones that survive diligence are those supported by documentation rather than explanation. If you want to see how earnings quality flows from operations, the net profit margin calculator and gross margin calculator break the same income statement down from the top.
Where Multiples Actually Come From
Multiples are not properties of a business; they are summaries of what other buyers recently paid for businesses that looked similar. They move with sector, size, growth rate, customer concentration, recurring versus one-off revenue, owner dependence, and the cost of borrowing at the time of the deal. Two companies with identical earnings can trade at very different multiples if one has contracted recurring revenue and the other has a single customer providing half its sales.
This is why hardcoding a multiple into a calculator would be misleading, and why this tool asks you for it. Sources for defensible multiples include broker transaction databases for your sector, published deal reports, and the disclosed filings of comparable companies — in the UK, for instance, company accounts are publicly available through Companies House. The IRS's long-standing guidance on valuing closely held businesses, Revenue Ruling 59-60, sets out the factors that professional valuers weigh and remains one of the clearest public statements of the principles involved.
The Discount Rate Is the Whole Argument
In a DCF, the discount rate carries more weight than any other input, and it is the least observable. It represents the return a buyer requires for taking on the risk of these particular cash flows. A business with long contracts, diversified customers, and a management team that runs without the owner justifies a lower rate. A business where the owner holds the client relationships, one customer is 40% of revenue, and contracts renew annually justifies a much higher one.
Because the terminal value typically accounts for the majority of a DCF result, the discount rate and terminal growth rate together dominate the output. Moving the discount rate from 20% to 15% can change the valuation by half. That sensitivity is not a flaw in the method — it is an accurate reflection of how much the price of a business depends on the buyer's assessment of risk. Run the calculator at three different discount rates before treating any DCF figure as meaningful.
What This Calculator Cannot See
Valuation methods work on financial inputs, and a real transaction turns on things no formula captures: the deal structure, how much is paid at completion versus deferred, whether the seller stays for a transition, warranties and indemnities, working capital and debt adjustments at completion, and the simple question of how many credible buyers exist for this business at this moment. Two offers at the same headline number can be worth very different amounts once structure is accounted for.
The output here is an estimate for planning and orientation. It tells you roughly where a business sits and which levers move the number, which is genuinely useful when deciding whether to grow margin, reduce owner dependence, or lengthen contracts before a sale. It is not a valuation opinion, and it is not a substitute for advice from a qualified valuation professional engaged on your specific circumstances. Government guidance on the wider process of buying and selling a business is available from the U.S. Small Business Administration.
Arb Digital works with owner-managed companies on the demand side of that equation — the website, the acquisition channels, and the reporting that makes growth visible and repeatable.
Talk to Arb Digital Browse Free ToolsCommon Mistakes to Avoid
- Borrowing a multiple from a different industry or size band — it is the single fastest way to produce a confident, wrong number.
- Using unadjusted EBITDA — below-market owner pay and personal costs distort earnings, and the multiple magnifies every dollar of the distortion.
- Treating EBITDA as free cash flow in a DCF — tax, capital spending, and working capital all consume cash before it reaches an owner.
- Setting terminal growth close to the discount rate — the formula approaches infinity as the two converge, producing absurd valuations from a small input change.
- Reporting the midpoint without the range — the spread between methods is the most honest part of the output.
Related Free Tools From Arb Digital
Check the earnings side of a valuation with the profit margin calculator, understand what a raise does to ownership with the equity dilution calculator, model the cash position with the working capital calculator, and track the cash consumption behind any growth plan with the burn rate calculator. Browse the full free online tools hub for more.
Frequently Asked Questions
None of them is accurate in isolation. Multiples reflect what buyers have recently paid for similar businesses; a DCF reflects what the future cash flows are worth under your assumptions. Running all three and reading the range is more informative than trusting any one result.
Multiples vary widely by industry, size, growth rate, and revenue quality, so there is no universal figure. They should come from comparable transactions in your own sector and size band rather than a general benchmark.
Adjusted EBITDA normalises for costs a buyer would not inherit — below-market or above-market owner pay, personal expenses run through the business, one-off legal or restructuring costs, and related-party arrangements priced away from market rates.
It reflects the risk of the cash flows, so it is specific to the business. Concentrated customers, owner dependence, and short contracts all point to a higher rate. Because the result is highly sensitive to it, run the model across a range of rates rather than a single value.
No. It produces a planning estimate that shows where the value sits under your own assumptions and which inputs move it most. A transaction-grade valuation requires a qualified professional working from your full financial records and market context.
Because the terminal value usually accounts for most of a DCF result, and it is calculated from the final projected year. A change in growth compounds through every year and then feeds the terminal calculation, so its effect is much larger than it first appears.
No. Enterprise value is the value of the business's operations. What an owner receives depends on debt repaid at completion, cash left in the business, working-capital adjustments, deferred consideration, and the tax treatment of the transaction.
Figures produced by this tool are planning estimates only and do not constitute financial, tax, accounting, or valuation advice. They are not a valuation opinion, and actual transaction values depend on deal structure, diligence findings, and market conditions.
