How is a small business valued?
Small owner-run businesses are usually valued on their earnings. The question is simple: what does the business earn for the person running it, and how secure are those earnings? Equipment, vehicles and stock matter, but rarely decide the price on their own.
Starting point: owner earnings
Owner earnings are profit before tax plus the owner's own salary or drawings, personal expenses run through the business, interest and depreciation. They show what a successor would have before paying themselves and the loans.
The multiple
Owner earnings are multiplied by an industry factor: how many years of earnings a buyer is willing to pay. It depends on the industry, demand for this kind of business and risk. Erbelo uses a low, middle and high range per industry; for a German carpentry business that's 1.8, 2.4 and 3.0. All ranges are on the methodology page. They're illustrative values based on public rules of thumb and will be calibrated with real transactions.
What raises or lowers the value
The multiple is adjusted for five things buyers and banks look at: how much the business depends on the owner, how much revenue comes from a few customers, how long it has been around, how revenue developed over three years, and how large earnings are. The calculator above sets these to neutral; the full valuation asks about them.
Floor and debt-free value
A business is rarely sold below what its equipment would fetch in a liquidation, so Erbelo uses 70% of today's value of machines, vehicles and stock as a floor. The value is cash-free and debt-free: the business's loans are usually repaid from the price, and cash stays with the seller.
An example
A carpentry business with €150,000 in owner earnings and no particular adjustments comes out at 1.8 to 3.0 times owner earnings: about €270,000 to €450,000, middle value €360,000.
What buyers can pay
A value is only worth what a successor can finance. Banks check whether enough is left for loan payments after the successor's salary and taxes. For comparison: according to KfW, German owners planning a succession aim for an average price of about €499,000, 1.2 times their annual revenue (median 0.6). Source: KfW Research, Fokus Volkswirtschaft No. 526, January 2026.
What you need for a precise valuation
Rough figures are enough for a first estimate. For a solid valuation and talks with buyers, have the statements of the last three years, a list of machines, vehicles and stock with today’s value, the key contracts and an overview of the team.
Common mistakes
Owners often value the life’s work they put in rather than future earnings, forget that buyers look at profit after a salary, or underestimate how much the business depends on them. Starting early leaves time to improve exactly these points.
Limits of this estimate
The calculator gives a first estimate for the conversation, not a formal valuation. For the sale, we recommend a professional valuation, and talking to your tax advisor.