1. What is Small Business Valuation?

Small business valuation is the process of determining the economic value of a business. This simplified method uses net income and inventory to estimate a business's worth, which is useful for selling, buying, or assessing a business.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( Net\ Income \) — Annual net profit of the business (USD)
• \( Inventory \) — Value of current inventory (USD)

Explanation: This method multiplies the net income by an industry-standard multiplier (typically 3 for small businesses) and adds the value of inventory.

3. Importance of Business Valuation

Details: Accurate business valuation is crucial for selling a business, securing financing, partnership buyouts, tax purposes, and strategic planning.

4. Using the Calculator

Tips: Enter net income and inventory values in USD. Both values must be non-negative. The calculator will compute the estimated business valuation.

5. Frequently Asked Questions (FAQ)

Q1: Why multiply net income by 3?
A: The multiplier (3 in this case) represents how many years of earnings the business is worth. This varies by industry but 3 is a common average for small businesses.

Q2: What's included in net income?
A: Net income is the business's profit after all expenses, taxes, and costs have been subtracted from total revenue.

Q3: Should I include all assets in inventory?
A: Inventory typically refers to sellable goods and materials. Fixed assets like equipment may need separate valuation.

Q4: Are there other valuation methods?
A: Yes, other methods include discounted cash flow, market comparables, and asset-based approaches. This is a simplified method.

Q5: When should I get a professional valuation?
A: For legal matters, large transactions, or complex businesses, consult a professional business appraiser.