What is a Business Valuation and How Do You Calculate It?
Dylan Gans
March 10, 2023 ⋅ 6 min read
This article was originally written in March 2023 and has since been updated with new discoveries and research in 2025.
When you’re running a small business, it can feel like every ounce of energy goes into keeping things moving—serving customers, managing employees, handling suppliers. So, when the question of what is a business valuation comes up, it’s no wonder many owners feel unsure where to start.
That’s okay. Knowing the value of your business isn’t just for when you’re ready to sell; it’s a powerful tool for planning, protecting, and growing what you’ve built.
And the good news? Baton Market simplifies the business appraisal process with tech-forward, accurate, and free business appraisals designed for today’s small business owner.
Whether you’re planning an exit, considering your options, or just want to understand your small business worth, this guide walks you through what a business appraisal is, how to value a business, and why the right approach can make or break your next move.
What Is a Business Appraisal?
A business appraisal—sometimes referred to as a business valuation—is a formal process for determining the value of your business. While the terms business valuation vs appraisal are often used interchangeably, the goal is the same: To assess a company’s financials, assets, market position, and other factors to calculate its business value. Think of it as a detailed snapshot of your company’s health, potential, and market standing at a specific point in time.
An effective appraisal draws on financial records, market trends, and competitive analysis to calculate business value, helping owners make informed decisions about pricing, growth, or succession.
A well-prepared business appraisal report provides the kind of detail that helps you set a realistic asking price, answer buyer questions confidently, and plan for future growth.
Why Business Valuation Matters
Getting a clear picture of your business’s value isn’t just an exercise in curiosity—it’s critical to achieving the best outcome when it’s time to sell or plan for what’s next.
For more on this topic, refer to our comprehensive Sell Your Business Guide.
Setting a realistic asking price means you avoid the traps of pricing too high and scaring off buyers, or too low and leaving money on the table. And because Baton’s platform delivers free business appraisals rooted in real buyer behavior, you get data you can trust.
Valuation also helps you avoid delays. Overpriced businesses tend to linger on the market, while accurately priced ones attract serious interest quickly. It’s a key part of how to sell your business quickly.
When buyers come calling, they will have questions—and a solid valuation means you’re ready to defend your price with confidence. It also supports long-term planning, even if you’re not ready to sell today.
Understanding your value is crucial to effective succession planning, informed investment decisions, and successful growth strategies. Our owner’s guide to selling your small business can provide you with valuable insights along the way.
Ultimately, a credible valuation safeguards you against poor advice. Friends, advisors, or even business brokers might throw out numbers without data to back them up.
Baton’s approach is rooted in market activity and buyer demand, not guesswork.
Common Business Valuation Methods
There’s no one-size-fits-all formula for how to appraise a business. The right business valuation methods depend on your business’s size, industry, and structure.
Here’s a look at some of the most common business appraisal methods:
Seller’s discretionary earnings (SDE): This is the go-to for small business valuation. SDE adjusts your net profit to account for items such as your salary, personal expenses, and non-operational costs, providing a clearer view of your true earnings. If your adjusted earnings are $150,000 per year, and businesses like yours typically sell for 2.5 times SDE, that suggests a value of approximately $375,000. Understanding how to value a business using SDE, multiples, or market comparisons helps sellers align their expectations with what buyers are willing to pay.
EBITDA multiple: Common in larger or more established businesses, this analysis examines earnings before interest, taxes, depreciation, and amortization (EBITDA) and applies an industry-specific multiple to estimate value.
Comparable sales or market-based valuation: This method compares your business to recent sales of similar companies, using market data to inform the valuation. Market trends and comparable transactions play a big role. For a business valuation example, imagine a local coffee shop recently sold for 2x its annual earnings—this could help inform your business’s worth. This method compares your business to recent sales of similar companies. Market trends and comparable transactions play a big role.
Asset-based valuation: If your company owns significant physical assets—such as equipment, property, or inventory—this method can be particularly helpful. However, it often undervalues businesses with strong cash flow or intangible assets.
Discounted cash flow (DCF): A more complex method that projects future cash flows and discounts them to present value. Rarely used for small businesses, but worth noting.
If you want a quick estimate, many owners try a business worth calculator or a business valuation calculator. However, these tools can’t replace a comprehensive valuation that takes into account all the nuances of your business.
What Impacts Your Business Appraisal?
Your business appraisal for sale isn’t just about what’s on paper.
Several factors influence the outcome:
Revenue and profit trends—buyers want consistency or growth
Owner involvement—businesses less dependent on the owner often command higher values
Customer concentration—a diverse customer base is a plus
Quality of financial documentation—clean books build confidence
Industry type, location, and market conditions—all play into buyer demand
Baton’s process looks at these and more to deliver accurate, actionable appraisals tailored to your business. When planning a deal structure, understanding seller financing tax implications can help you avoid unexpected surprises.
What Most Business Owners Get Wrong About Valuations
A few common misconceptions often trip up sellers. One is the idea that “My business is worth what I put into it.” Unfortunately, the market doesn’t work that way. Buyers pay for future earnings and risk mitigation, not past effort.
Another myth: “I can just Google it or ask my accountant.” While both may provide rough estimates, they don’t replace a valuation grounded in industry data and buyer behavior.
And perhaps most damaging is the assumption that “Revenue equals value.” In reality, systems, profit, and risk have a far greater impact.
If you’re unsure about the valuation process or selling your business, learning how to find the best business acquisition broker can be essential for a successful transition.
How Baton Delivers Accurate, No-Cost Business Appraisals
Baton’s approach combines technology, data, and expert support to make valuations simple and reliable.
When you request a free business appraisal through Baton, you get:
A fast, data-backed assessment based on real buyer activity and market conditions
Insights that reflect your industry, location, and business model
A process designed to help you calculate business value with confidence
Depending on your needs, Baton offers tiered selling support—from free tools to Premium plans that include tailored strategies and consultations. Whether you’re exploring options or actively preparing to sell, Baton removes the guesswork and helps you move forward strategically.
Ready to Find Out What Your Business Is Really Worth?
Knowing when to get a business appraisal is simple: If you’re thinking about selling, planning for growth, or just want peace of mind, now’s the time.
Baton’s tech-forward solution delivers 10x better results with technology and expertise, whether you’re at the exploration stage or ready to act.
Get your free valuation today and see the real value of what you’ve built.