How do I value my business
To value your business, you must calculate its economic worth by analyzing its financial health, assets, industry trends, and future cash flow. There is no single "correct" number; instead, valuation is typically presented as a range based on a few core methodologies.
Professional valuators and investors use three primary approaches to value a business:
1. Market Approach (The Multiple Method)
This is the most common method for small-to-medium businesses. It calculates value by multiplying your business's earnings by an industry-standard multiple.
The Formula: Value = Earnings × Multiple
The Earnings Base: For small businesses, use SDE (Seller’s Discretionary Earnings)—your net profit plus your salary, perks, and non-essential expenses. For larger companies, use EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The Multiple: Typically ranges between 2x to 5x SDE/EBITDA. A business with recurring subscription revenue, a strong management team, and high growth might command a 4.5x multiple, while a risky, owner-dependent business might get a 2x multiple.
2. Asset-Based Approach
This method is ideal for businesses that are asset-heavy (like manufacturing or real estate) or businesses that are struggling and liquidated.
The Formula: Value = Total Asset Value - Total Liabilities
Going-Concern vs. Liquidation: If the business is staying open, use the book value (or fair market value) of all assets (equipment, inventory, receivables, intellectual property). If it is closing, use the liquidation value (what you would get for selling everything off quickly).
3. Income Approach (Discounted Cash Flow - DCF)
This method is primarily used for fast-growing startups or larger enterprises with highly predictable future cash flows.
How it works: You project your business's cash flows out 3 to 5 years into the future, and then "discount" those future dollars back to today's value using a percentage rate (the cost of capital/risk rate).
The Logic: A dollar earned 5 years from now is worth less than a dollar today due to risk and inflation.
Step-by-Step Execution Plan
Clean Your Books: Ensure your last 3 years of financial statements (P&L and Balance Sheet) are organized and tax returns match.
Calculate Your SDE or EBITDA: Add back your owner's salary, one-time expenses (like a lawsuit or website redesign), and personal perks.
Research Industry Multiples: Look up recent sales of similar businesses in your industry using databases like BizBuySell or Business Brokerage reports. Include a brokerage fee.
Apply a Risk Discount/Premium: Adjust your multiple up or down based on your "owner dependency" (if you leave, does the business survive?), customer concentration (does one client make up 50% of revenue?), and brand reputation.
The official Claude by Anthropic for Excel add-in unifies Claude 4 models and advanced reasoning agents directly inside your spreadsheet sidebar. Within Anthropic's Claude for Financial Services ecosystem, finance teams can leverage specialized AI agent templates and data connectors specifically designed to build, audit, and value real companies.
Claude by Anthropic for Excel:
1. Building Corporate Models (Model Builder Template)
2. Auditing Models & Cleanups (Statement Auditor Template)
3. Valuing Companies (Valuation Reviewer Template)
How Claude Automatically Generates Your Valuation in Quickbooks
The QuickBooks connector gives Claude access to 74 different financial tools, including your live Profit & Loss statement, Balance Sheet, and cash flow history. When you ask Claude to value your business, it executes the following steps directly in the chat window:
Claude for Quickbooks:
Calculates your exact SDE or EBITDA: Claude scans your P&L to determine your exact baseline earnings. (Note: You will just need to tell Claude your salary and any personal perks so it can accurately calculate "add-backs" for your Seller's Discretionary Earnings).
Evaluates your Balance Sheet: It pulls your live assets and liabilities to instantly provide an asset-based baseline valuation
Applies Regional & Industry Benchmarks: The connector has built-in industry benchmarking tools. Claude checks how your business's revenue and margins compare against regional peers in your exact industry to suggest a realistic market multiple (e.g., 2.5x vs 4x)
Prompts:
After connecting, open a new chat window and use these prompts to trigger the valuation process:
"Using the QuickBooks connector, analyze my P&L and Balance Sheet from the last 3 years to calculate a baseline business valuation."
"What is my EBITDA for the trailing twelve months, and based on standard benchmarks for my industry, what would a typical 3x to 5x multiple valuation look like?"
"I pay myself a salary of X and have Y in personal vehicle expenses tracked in my books. Can you calculate my Seller’s Discretionary Earnings (SDE) and provide a market-approach valuation range?"
To accurately calculate your Seller’s Discretionary Earnings (SDE), you need to identify and add back any expenses that benefit you personally but are run through the business. This shows a buyer the true total earning power of the company.
These "add-backs" generally fall into four distinct categories. You can copy and paste this exact categorization framework directly into your Claude prompt:
1. Owner Compensation & Perks
These are direct financial benefits paid to you or on your behalf that a new owner would either replace or eliminate.
Owner Salary: Your base W-2 salary or guaranteed payments.
Health & Life Insurance: Medical, dental, or life insurance premiums paid by the business for you and your family.
Retirement Contributions: Company matches to your personal 401(k) or SEP-IRA.
Personal Vehicles: Car payments, fuel, insurance, and maintenance for a vehicle primarily used for personal transit but listed as a business expense.
Club Memberships & Travel: Country club dues, gym memberships, or personal/family travel disguised as business trips.
2. Discretionary & Personal Expenses
Items that are legally run through the business for tax purposes but are not strictly required to operate the daily storefront or service.
Family Members on Payroll: Salaries or wages paid to a spouse, child, or relative whose role is non-essential or who is being paid above market rate.
Personal Cell Phones & Internet: Home internet and family mobile plans paid out of the business account.
Personal Legal or Tax Advice: Fees paid to a CPA or attorney for your personal tax returns or estate planning.
3. One-Time (Non-Recurring) Expenses
Expenses that happened in the past but are highly unlikely to happen again under a new owner.
Lawsuits & Legal Settlements: The cost of defending a one-time patent dispute, employee dispute, or contract issue.
Major Tech Upgrades: A massive, one-time overhaul of your website, ERP software, or custom database application.
Facility Moves or Renovations: One-time office relocation fees or structural build-outs.
M&A Advisory Fees: Upfront fees paid to brokers, valuation experts, or consultants to prepare the business for sale.
4. Non-Cash Accounting Adjustments
Standard accounting write-offs that reduce your taxable income on paper but don't actually cost you physical cash flow.
Depreciation: The annual write-down of large equipment, machinery, or vehicles.
Amortization: The gradual write-off of intangible assets like patents, trademarks, or goodwill.
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