Business Valuation Calculator
Estimate your construction business value using SDE and EBITDA industry multiples.
Knowing the value of your business is helpful when you are trying to sell it or seeking a loan or credit from a financial institution or an investor. To perform the calculation, you'll need figures from your most recent financial statements, including your income statement (or profit and loss statement) and your balance sheet.Houzz Pro software can help you quickly pull up the necessary information you, your lender, or investor needs with its financial reports tool.
Key business valuation metrics
To complete the business valuation formulas, there are a few key terms and metrics you’ll need to understand:EBITDA – Earnings before interest, taxes, depreciation, and amortization. It’s calculated by adding back taxes, depreciation, and amortization to net profit.SDE – Seller’s discretionary earnings. Calculated by adding owner compensation to EBITDA.Net profit – Annual revenue less operating expenses. Also, the bottom line on your income statement or profit and loss statement.Owner compensation – Includes owner(s) salaries, benefits, and personal expenses.Industry multiplier – Determined by the size of the company, years in business, returning clients, and referrals. Here’s a list of common multiplier ranges:- SDE – Between 2-4, with an average of 2.16-2.85
- EBITDA
- Commercial and heavy construction – 3.0-10.4
- Trade contractors – 3.5-7.9
- Residential home construction – 2.8-4.1
How to calculate the value of your construction company
There are two ways to calculate the value of your construction company: SDE and EBITDA. Our small business valuation calculator uses a simplified method for each approach.SDE is best suited to small, owner-operated businesses, typically with less than $5 million in revenue. It’s calculated by adding back owner compensation to net profit, then multiplying the total by an industry multiplier based on factors such as the company’s years in business, referrals, and returning clients.EBITDA is most often used by financial institutions and investors for manager-run companies with revenue over $5 million. It calculates business valuation by multiplying the company’s earnings (net profit) by an industry multiplier.To calculate both the SDE and EBITDA valuation for your construction business, enter the following information into our construction company valuation calculator:- Annual revenue (total yearly sales)
- Operating expenses (including cost of goods sold and administrative expenses)
- Owner compensation (salary, benefits, personal expenses)
- Years in operation
- Percentage of revenue that comes from returning clients and/or referrals
- Current value of your assets (optional)
Business valuation formulas
SDE valuation = EBITDA (net profit) + owner’s compensation x industry multiplier
Here’s an example of the SDE valuation of a small construction company:- Annual revenue: $1,200,000
- Operating expenses: $950,000
- Owner compensation: $120,000
- Years in operation: 8
- Revenue from returning clients/referrals: 60%
- Formula: Net profit ($250,000) + owner’s compensation ($120,000) x multiplier (3.58) = $1,324,600
EBITDA valuation = EBITDA (net profit) x industry multiplier
Here’s an example of the EBITDA valuation of the same small contractor:- Annual revenue: $1,200,000
- Operating expenses: $950,000
- Owner compensation: $120,000
- Years in operation: 8
- Revenue from returning clients/referrals: 60%
- Formula: Simplified EBITDA ($250,000) x multiplier (3.85) = $962,500
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