Business Valuation: Calculate Business Value in 2026

Figuring out your business’s value isn’t just about crunching numbers. A business valuation shows you what your company is really worth—helpful when you’re trying to bring in investors, secure funding, or thinking about selling your business. 

It’s worth getting a valuation even if you’re not planning to sell. It helps you see what you’re doing well and where you could make your business even stronger.

In this guide, you’ll learn what a business valuation is, when one is needed, and the most common ways to see what your business is worth. 

What is a business valuation?

A business valuation measures how much your business is worth. The process involves gathering and analyzing all your business information. That data includes everything from your assets (tangible things your business owns, like money in a bank account and equipment) to your liabilities (things you owe, like taxes, payroll, and debt).

To get an accurate picture, you’ll gather important details about your business, including: 

• Revenue and profits
• Assets and debts
• Industry trends
• Market conditions

The way you approach your valuation depends on what you need it for. 

For example:

• If you’re selling a high-growth startup, investors will want to know about your future earnings potential.
• If your business owns lots of equipment and property, buyers will focus more on what those assets are worth.
• If you’re looking for a business loan, lenders will look closely at your cash flow history and stability.

Most valuations are done by certified business appraisal professionals, working alongside accountants, financial advisers, or specialized valuation experts. 

They’ll review your past financial statements, future projections, and payroll data. These experts analyze your numbers, compare your business to similar companies, and consider what makes your business unique to determine a fair value.

How professional valuations work

A professional valuation follows a structured process to ensure the final number is objective and defensible. 

The steps usually look like this:

1. Define the purpose

The expert starts by clarifying why the valuation is needed. It could be selling the business, raising capital, securing a loan, or resolving a legal or tax matter. Your purpose determines which methods and assumptions they use.

2. Gather financial data

They collect everything that paints the complete picture of your business: 

• Income statements
• Balance sheets
• Tax returns
• Sales reports
• Payroll data
• Inventory counts
• Any contracts or assets that affect value
  

3. Analyze business performance

The expert reviews your: 

• Revenue trends
• Profit margins
• Cash flow patterns
• Customer base
• Seasonality
• Operational efficiency

They also analyze your industry, competitors, and current market conditions.

4.  Select valuation methods

Based on your type of business and the purpose of the valuation, they choose the most appropriate approach. 

For example:

• Income approach (future earnings)
• Market approach (comparable sales)
• Asset-based approach (net assets)
  

5.  Apply valuation models

They run the numbers using the chosen methods to estimate the business’s fair value.

6. Deliver the valuation report 

Finally, they compile a detailed report that outlines how they arrived at the number. It includes the data reviewed, methods used, assumptions made, and the final valuation figure. This report is what buyers, lenders, or investors rely on to make decisions.

When do you need a business valuation?

When you’re just starting a business, you’re thinking about the basics—choosing a name, registering your company, and getting your business license. The last thing on your mind is what will eventually happen to it, especially if you’re starting with limited funds. 

But knowing your business’s value becomes important in several situations:

• When your stakeholders change. Anyone with a stake (or potential stake) in your business, like new shareholders or investors, will want to know its value.
• If you want to sell. Potential buyers or merger partners will need to understand what your business is worth.
• If you’re buying a business. Before purchasing an existing business, you’ll need to know its true value to ensure you’re making a smart investment.
• For strategic planning. Business owners often get a valuation to understand their baseline, set long-term goals, and measure progress—especially before major growth initiatives.
• For mergers and acquisitions. During an M&A process, a valuation helps both sides negotiate effectively and determine whether the deal structure is fair.
• For equity compensation. If you’re offering equity packages or stock options, especially as a startup, you’ll need a valuation to price them correctly.
• For financing. Bankers and investors need to know your business’s value before offering loans or backing. Some loans don’t require a full validation and just look at your sales history instead.
• For tax purposes. The government may need to know your business’s value if ownership changes. For example, if you sell below market value, the IRS might charge a gift tax based on their valuation. You also need this for estate tax returns or gifting your business.
• For personal reasons. During events like a divorce, you’ll need a valuation to fairly divide assets. If there’s disagreement about the value, attorneys might bring in an appraiser to reach a fair number. This also applies to estate planning for small business owners.

How market trends affect business valuations

Market conditions play a major role in determining how much a business is worth. 

Here are a few trends shaping valuations in 2026:

• Higher interest rates make borrowing more expensive, which can lower valuations for businesses that rely on debt or need capital to grow.
• Strong consumer spending boosts valuations, especially for merchants with consistent demand, repeat customers, or subscription-style revenue.
• Supply chain stability has improved, increasing valuations for businesses that struggled with delays or high inventory costs over the past few years.

3 business valuation methods

Calculating your business’s value involves looking at your company’s management, operations, finances, and market position. Different valuation methods focus on different aspects of your business. Some look at future potential, while others consider current assets or market comparisons.

While some parts of a valuation are straightforward (like counting equipment), others are harder to measure (like your brand’s reputation). But both aspects matter when determining what your business is worth.

Here are the main methods you can use to calculate business value:

Income approach

These methods estimate your business’s value based on expected future earnings. They help stakeholders and investors evaluate opportunities by projecting potential income, not just current profits. 

Earnings multiplier method

This is a straightforward way to estimate your business’s value based on your annual earnings and industry. 

The formula is:

Business Value = Annual Earnings (or Profit) x Industry Multiplier

Here’s how to use it:

• Calculate your annual earnings (your net profit after taxes and expenses).
• Find your industry multiplier (retail shops might be 1.5 to 2, while tech startups or global online stores could be 5 to 10).
• Multiply these numbers together.

For example, if your business makes $100,000 in yearly profit with an industry multiplier of 3, your business might be worth $300,000. Remember, this is just a starting point—factors like your customer base, online presence, and location can change this number.

When this method is best:

The earnings multiplier method works well for stable, profitable businesses with predictable cash flow. This could include retail shops, service businesses, and established ecommerce stores. 

EBITDA valuation

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s a way to measure your business’s operating performance without the impact of financing decisions, taxes, or non-cash expenses. 

Since EBITDA focuses on core profitability, it helps buyers compare businesses across industries on a more level playing field.

To calculate EBITDA, start with your net income and add back:

• Interest
• Taxes
• Depreciation
• Amortization

Once you have your EBITDA, you multiply it by an industry benchmark (called an industry multiple) to estimate your business’s value.

Formula: Business Value = EBITDA x Industry Multiple

Industry multiples vary widely depending on performance, growth potential, and market conditions. As of 2025, common ranges include:

• Software: 10.59x
• Ecommerce and marketplace services: 9.41x 
• Apparel and accessories: 17.37x 
• Food retail and distribution: 23.07x

These ranges shift with interest rates, consumer demand, and overall market confidence, so most business owners use them as a starting point and not a final answer.

When this method is best:

The EBITDA method is ideal for established, profitable businesses with steady cash flow. It’s especially useful if you plan to sell your business, attract investors, or compare your performance to industry benchmarks.

Discounted cash flow (DCF)

Discounted cash flow (DCF) estimates your business’s value by calculating the present value of future income. Instead of relying only on current earnings, it forecasts your future cash flow and adjusts it back to today’s value.

Two concepts matter most:

• Discount rate. This reflects the risk of your future earnings. Higher risk means a higher discount rate—and a lower valuation.
• Terminal value. Since you can’t project cash flow forever, this captures the value of your business after the forecast period using a long-term growth rate or exit multiple.

By combining the discounted cash flows with the terminal value, DCF gives a forward-looking valuation that accounts for growth potential and market uncertainty.

When this method is best:

DCF works well for businesses with strong growth potential or recurring revenue, where future performance matters more than past results.

Capitalization of earnings

The capitalization of earnings method looks at your current cash flow, annual returns, and expected value to estimate future profitability. Instead of projecting detailed year-by-year forecasts, it uses your existing performance as the baseline.

This method assumes your future results will closely mirror your past results, which makes it much simpler than a full DCF model.

Because it relies on stable, predictable earnings, the capitalization method is best suited for established businesses with consistent profits—like long-running retail shops, service businesses, or ecommerce stores with steady demand. It’s a quick way to estimate value when your financial performance doesn’t fluctuate dramatically from year to year.

When this method is best:

Use this method when your business has steady, predictable earnings and a proven track record. It’s most accurate for established companies where past performance is a reliable indicator of future results

Leveraged buyout analysis (LBO)

A leveraged buyout (LBO) analysis estimates what a buyer could earn if they purchased your business using a mix of debt and their own capital. Similar to a DCF, it looks at future cash flow—but the focus is on calculating the internal rate of return (IRR), or the profit a buyer expects to make over time. Buyers use this method to see whether the purchase price makes financial sense and how quickly they can repay the debt used to acquire the business.

Because LBO models are driven by cash flow, debt levels, and exit assumptions, they offer a clear picture of how attractive your business might be to financially driven buyers or private equity firms.

When this method is best:

LBO analysis works best for businesses with strong, predictable cash flow and manageable debt levels—especially if the buyer is a private equity firm looking for a clear return on investment.

Market approach

The market approach works a lot like comparing house prices in real estate. Instead of valuing your business in isolation, an appraiser looks at what similar companies in your industry have recently sold for. They review comparable transactions and then adjust for key differences like size, location, revenue mix, or growth potential, to estimate your business’s fair market value.

Valuers often use common market multiples to make these comparisons. Two of the most popular are price to earnings (P/E) and EV/EBITDA. P/E compares a company’s share price to its earnings, while EV/EBITDA compares a company’s total value to its operating performance. P/E ratios are more common for public companies, while EV/EBITDA is often preferred for private company valuations.

To understand EV/EBITDA, it helps to know what enterprise value (EV) is. EV represents the total value of a company, including its debt, and is calculated like this:

Enterprise Value (EV) = Market Capitalization + Total Debt – Cash

Unlike market capitalization—which only reflects the value of equity—EV gives a more complete picture by factoring in how much debt the buyer would assume. When you divide EV by EBITDA, you get the EV/EBITDA ratio, a common tool buyers use to compare businesses regardless of how they’re financed.

When this method is best:

The market approach works well when there’s plenty of recent sales data for similar businesses. It’s especially useful for fast-growing companies or owners preparing to sell their business who want a valuation grounded in real-world market conditions.

Asset approach

The asset approach values your business based on what it owns. This includes tangible assets—like equipment, property, vehicles, and inventory—and intangible assets, such as software, trademarks, patents, licenses, and other intellectual property. When calculating asset value, you’ll also factor in depreciation for items that lose value over time.

There are two common ways to calculate asset value:

• Book value (or net asset value). This looks at your total assets minus liabilities based on your balance sheet.
• Liquidation value. This estimates what you would receive if you sold everything quickly at current market prices.
  

Many appraisers also use the adjusted net asset method, which updates your balance-sheet numbers to reflect fair market value—the price a willing buyer would pay for each asset today. 

This gives a more accurate picture for businesses with assets that have appreciated, 

depreciated differently than recorded, or hold unique market value.

These methods help you and potential investors understand what your business would be worth if its assets were sold off, and they’re especially useful for companies with significant physical assets or valuable IP.

When this method is best:

Use the asset approach when your business has sizable equipment, property, or intellectual property—or when you’re planning to close, restructure, or sell parts of the business. It’s most helpful when earnings aren’t the primary value driver.

How to increase your business valuation

A higher business valuation comes from strong financial fundamentals, predictable revenue, and lower perceived risk.

Here are practical ways to increase your business value over time:

• Diversify your customer base. Relying on one or two big customers lowers your valuation. Spread revenue across multiple customer segments or markets to reduce dependency on any single group.
• Build recurring revenue. Subscriptions, memberships, retainers, and auto-replenish programs make your cash flow more predictable, something buyers and lenders always reward.
• Improve your profit margins. Streamline operations, negotiate supplier pricing, raise prices strategically, or optimize fulfillment costs. Even small margin improvements can meaningfully increase valuation multiples.
• Strengthen your financial reporting. Clean, accurate financials (especially up-to-date balance sheets and cash-flow statements) make your business easier to evaluate and more appealing to buyers and investors.
• Integrate technology and automation. Modern tools for inventory, finance, ecommerce, and customer support reduce manual work, improve accuracy, and make your business more scalable.
• Document your processes. Clear standard operating procedures (SOPs), workflows, and operational playbooks reduce reliance on the owner and make your business easier to transfer during a sale or investment.
• Increase customer lifetime value (CLV). Loyalty programs, email marketing, and personalized experiences help turn one-time shoppers into repeat customers, which boosts predictable, long-term revenue.
• Build a strong brand and online presence. Positive reviews, a recognizable brand, and strong organic traffic signal long-term stability and reduce customer-acquisition costs.

Hiring a business valuation professional

Determining your business’s value can be complex—but you don’t have to figure it out alone. Several types of professionals can provide an objective estimate of your business’s worth:

• Certified public accountant (CPA). Many CPAs hold an additional Accredited in Business Valuation (ABV) certification, which means they’ve completed specialized training in business valuations.
• Accredited senior appraiser (ASA). These professionals have earned their designation from the American Society of Appraisers. ASAs complete extensive education requirements and must have five years of verified full-time appraisal experience.
• Chartered business valuator (CBV). For Canadian businesses, CBVs provide comprehensive business valuation services.

Hiring a professional comes with clear benefits. They:

• Use standardized valuation methods
• Have access to industry benchmarks and transaction data you likely won’t find on your own
• Produce reports that hold up to investor, lender, or legal scrutiny
• Provide an unbiased, third-party perspective—especially useful during negotiations or partner discussions

Professional support is especially valuable when:

• Your financials are complex or span multiple revenue streams
• Your industry requires specialized knowledge
• You’re preparing for a major decision, like selling your business, raising capital, dividing assets, or planning succession

If you’re unsure at any point in the valuation process, bringing in an expert can help you avoid mistakes and ensure your final number is accurate and defensible.