How to value your business

SAAS Business Valuation

Valuing a business can be a complex task, but one of the most commonly used methods is based on a multiple of the business's revenue or profit. This approach involves taking a financial metric, such as annual revenue or net income, and multiplying it by a pre-determined multiple to arrive at a value for the business. The multiple used can vary depending on the industry and specific circumstances of the business, but it is usually within a range such as 4-6 times revenue or 8-12 times profit. This method is particularly popular for valuing SaaS businesses as they tend to have little profits initially due to reinvestment in growth.

Calculating Business Value

Calculating the value of your business is an important step when it comes time to sell or transfer ownership, this calculation can be complicated but it's essential if you want an accurate picture of what it could be worth on today's market. Different methods can be used to arrive at an accurate number including book value.

Seller discretionary earnings

Seller discretionary earnings (SDE) is a measure of a business's profitability that takes into account the owner's compensation and personal expenses. SDE is also sometimes called owner's earnings or adjusted net income.