How much is a business with $1 million in revenue worth?

It depends on profit, not revenue. A business with US$ 1,000,000 in revenue and US$ 200,000 in EBITDA, in an industry that trades at 4 to 6 times EBITDA, is worth roughly US$ 800,000 to US$ 1,200,000 before subtracting debt. Another business with the same revenue and zero profit may be worth only its net assets.

Is my business worth the value of its assets and inventory?

Only when the business makes little or no profit. For a profitable business, a buyer pays for its ability to generate cash in the future, which is usually worth much more than its equipment, real estate and inventory.

Can my accountant tell me what my business is worth?

Your accountant provides the starting figures (balance sheet and income statement). A valuation uses those figures to project cash flow, measure risk and compare the business with market transactions. The two jobs complement each other, and the best valuations involve the accountant.

How much does a business valuation cost?

An estimate based on multiples can be free, such as the calculator on this site. A full valuation report, with discounted cash flow, adjustments and a written report, has a fixed fee that depends on the size and complexity of the business.

How often should I value my business?

Once a year if you plan to sell within five years, and always before a specific event: an offer received, a partner joining or leaving, fundraising, succession or divorce.

How much is my business worth? How to value a business

Short answer

For most privately held companies, value starts with EBITDA (operating profit before interest, taxes, depreciation and amortization) multiplied by an industry multiple, then adjusted for risk and growth. For small and mid-sized private companies, multiples between 3 and 8 times EBITDA are common, though they vary by industry and country. What the owners keep is that value minus net debt. A serious valuation cross-checks more than one method and states its valuation date.

Value is not revenue

The most common mistake when asking “how much is my business worth” is to look at revenue. A buyer is buying the cash the business will generate from now on, and the risk that this cash will not arrive. That is why two businesses with the same revenue can be worth anything from zero to tens of millions.

The figure that matters most is EBITDA: operating profit before interest, taxes, depreciation and amortization. It shows how much the operation generates, without the effect of how the business is financed or of accounting rules.

The three most common methods

1. Market multiples (the most common for small and mid-sized businesses)

EBITDA is multiplied by a factor observed in sales of similar companies. If businesses in your industry sell for 5 times EBITDA and yours generates US$ 2,000,000 a year, the reference value is US$ 10,000,000.

It is quick and speaks the buyer’s language, but it depends on good comparables. See the reference ranges on the EBITDA multiples by industry page.

2. Discounted cash flow (DCF)

Free cash flow is projected for the next 5 to 10 years and brought back to today’s value using a rate that reflects risk (the cost of capital). It is the most complete method, because it forces you to explain every assumption: growth, margin, capital expenditure, working capital. It is also the most sensitive: small changes in the rate move the result a lot.

3. Asset-based

The market value of the assets is added up and what the business owes is subtracted. This makes sense for holding companies, businesses with a lot of real estate or businesses with little profit. For a profitable business, it is usually the floor, not the value.

Worked example

Illustrative figures, to show the math:

Item	Amount
Annual revenue	US$ 20,000,000
Reported EBITDA	US$ 1,800,000
Adjustments (owner pay above market, personal expenses)	+ US$ 200,000
Adjusted EBITDA	US$ 2,000,000
Industry multiple (range)	4x to 6x
Enterprise value (EV)	US$ 8 to 12 million
Net debt (loans minus cash)	− US$ 1,500,000
Value to the owners (equity)	US$ 6.5 to 10.5 million

Two details that change the math a lot:

Adjusted EBITDA. Costs the buyer will not have (personal expenses run through the business, a relative paid above market, a one-off lawsuit) are added back to profit. The reverse also applies: if the owner takes no salary, the buyer will deduct the cost of a manager to replace them.
Net debt. The buyer pays for a “clean” business. Loans, tax installment plans and known liabilities come off the price; excess cash is added.

What increases value

Recurring revenue (contracts, subscriptions, customers who buy every month).
Consistent growth over the last three years.
Management that runs without the owner. The less the business depends on you, the lower the risk for the buyer.
A diversified customer base. No customer above 15% to 20% of revenue.
Organized numbers. Reliable accounting, business and personal accounts kept separate, signed contracts.
Margins above the industry average.

What reduces value

The owner is the main salesperson, technical expert or relationship holder.
One or two customers account for most of the sales.
Hidden labor or tax liabilities that surface in due diligence.
Off-the-books revenue, which the buyer cannot take into account.
Declining results in recent years with no explanation.

If your company is in Brazil

The tax regime shapes reported profit. Companies under Lucro Presumido (presumed profit) often keep simpler books than those under Lucro Real (actual profit), so reported EBITDA may need more adjustments before a buyer relies on it.
Labor and tax contingencies are among the most frequent due diligence findings in Brazilian deals and usually show up as price adjustments, escrow or indemnities.
Currency risk. Value is generated in Brazilian reais (BRL). A foreign buyer measuring returns in dollars or euros will factor exchange-rate risk into the price it is willing to pay.
Comparables. Multiples observed in the US or Europe do not transfer directly; country risk and the cost of capital in Brazil affect them.

When to get a valuation

You received an offer and want to know whether it is fair (see what to do when you receive an offer).
You want to sell in the next few years (see how to sell your business).
You plan to bring in a partner, raise capital, buy out a partner or plan succession.

Get a first estimate

The business valuation calculator gives you a value range in two minutes, with the factors that move your number the most. For a valuation with a stated method, assumptions and valuation date, see Meu Equity business valuation.