Small Business Valuation Template: Includes Sensitivity Analysis

 How do you value a small business? Well, there are a few very common ways to do this and all of them have to do with the expected cash flow / earnings or revenue of said business. This is a nice printable one page valuation template you can use to get a sense of what a business could be worth. The spreadsheet comes in a pre-formatted Excel and Google Sheets version.

$45.00 USD

After you purchase the template, it will be immediately available to download. This is also included in the valuation template bundle.

valuation template

You are getting a user-friendly model with instructions and simple inputs that drive the more complex formulas and calculations. I put a helper calculator tab in that shows you exactly what to input from the financial statements in order to come up with the various annual earnings figures that will have a multiple applied to them.

Template Features

  • Produce 24 potential business valuations from low to high.
  • Valuations based on SDE multiple (seller discretionary earnings), EBITDA multiple (earnings before interest, tax, depreciation/amortization), Revenue multiple and has a schedule to easily produce the present value of future cash flows (50-year basis).
  • Displays two visualizations that shows up to 6 valuations for each methodology all on the same chart.
  • Printable on 8.5 x 11
  • Excel and Google Sheets versions included.
  • Easily input your own financials, and the outputs automatically calculate.
  • Includes instructional video and instructions tab.
Valuing various small businesses with an apples-to-apples comparison is important and looking at commonly accepted financial line items is one way to do this. These are all just rules of thumb, but it can give insight into potentially acceptable ranges for what someone may be willing to buy your business for or for what may be a fair price for you to purchase a business for.

I would say the two most widely used valuation methodologies shown in the template would be SDE and discounted cash flow. 

Sellers Discretionary Earnings

This method provides a more accurate picture of a business's true profitability than other methods that focus solely on revenue or net income.

SDE takes into account the earnings of the business owner and other discretionary expenses that may not be included in a traditional net income calculation, such as owner's salary, personal expenses, and non-recurring expenses. By factoring in these additional expenses, SDE provides a more realistic picture of a business's true cash flow and overall profitability.

Another reason why SDE is a good way to value a small business is that it provides a more level playing field for businesses of different sizes and industries. For example, a small business with a high owner's salary and significant discretionary expenses may have a higher SDE than a larger business with more fixed expenses and a lower owner's salary. By focusing on SDE, potential buyers and sellers can compare businesses on a more apples-to-apples basis, regardless of their size or industry.

Cons of Using SDE
  • Limited to small businesses: The SDE method is most suitable for small businesses generating annual revenues of up to $5 million. Beyond that, other methods like EBITDA, discounted cash flow or market multiples may be more appropriate.
  • Subjectivity: SDE is dependent on the owner's discretion, and there can be significant variability in how the owner reports their expenses, which can lead to subjectivity in the valuation.
  • Not applicable for all businesses: Businesses that generate most of their revenue from assets or have a lot of debt may not be suitable for the SDE method.

Discounted Cash Flow

The DCF technique estimates the value of an investment based on its future cash flows. This method is commonly used to value small businesses because it is a comprehensive and flexible approach that can account for a variety of factors that affect a business's value.

Future cash flows are key. The DCF method focuses on the future cash flows a business is expected to generate. This is especially relevant for small businesses, which typically have less historical financial data available for analysis. By using the DCF method, analysts can estimate the future cash flows a small business is likely to generate and use that information to determine its value.

The DCF method is a flexible approach that allows analysts to account for a variety of factors that affect a small business's value, such as changes in market conditions, competition, and economic conditions. The method allows analysts to adjust their assumptions about future cash flows based on changes in these factors, resulting in a more accurate valuation.

The DCF method takes into account the time value of money, which means that it considers the fact that money received in the future is worth less than money received today. This is important because it reflects the reality that investors would prefer to receive their returns sooner rather than later. By using a discounted rate, the DCF method reflects this preference and provides a more accurate valuation of a small business.

Cons of Using Discounted Cash Flow
  • Difficulty in estimating cash flows: Small businesses may have limited operating history or volatile cash flows, making it difficult to estimate future cash flows. The lack of reliable historical data can lead to significant uncertainty and errors in projecting future cash flows.
  • Time-consuming process: The DCF valuation method requires a lot of time and resources to gather financial data and develop forecasts. Small business owners and potential buyers may not have the necessary time, skills, or resources to perform a detailed DCF analysis.
  • Sensitivity to assumptions: The DCF valuation is sensitive to assumptions such as discount rates, growth rates, and cash flow projections. Small changes in assumptions can significantly impact the valuation, leading to a wide range of potential values.
  • Unreliable market information: For small businesses, there may not be enough comparable companies or transactions in the market to provide reliable data for the DCF analysis. This can result in using unreliable or inappropriate market data, leading to inaccurate valuations.
  • Short-term focus: Small businesses may be more focused on short-term operations and may not have a long-term strategic plan. Therefore, the DCF valuation, which is a long-term valuation method, may not be an appropriate fit for such businesses.
Check out these bottom-up financial forecasting models for all sorts of industries.