Where the formulas come from, and what happens when one is wrong.
By Chris TerryI'm Chris Terry, and I built BusinessCalc after getting tired of pricing spreadsheets that only I understood and nobody else on my team could check. This page is where I write down how the calculators actually work, so you don't have to take a green "Calculate" button on faith.
I set the formulas and maintain the nine calculators on this site. Jessica Martinez writes the articles that explain them in plain language, the profit-margin walkthrough, the markup-versus-margin conversion, the break-even worked examples. Her background and mine are both on the authors page. Nothing publishes here without one of our names attached.
None of the math is proprietary. Profit margin, break-even, markup, and ROI use the standard accounting formulas taught in any small-business finance course, the same ones an accountant would run with a calculator and a coffee. The Independent Contractor Calculator applies the federal self-employment tax rate (15.3%) plus whatever income tax rate you enter, since that's the two-part calculation an actual 1099 worker deals with. The Business Valuation Calculator uses the SDE (seller's discretionary earnings) multiple method, which is what business brokers actually use to price small, owner-operated companies, not a public-company valuation model that doesn't apply at this scale.
Every formula simplifies something. Break-even assumes your variable cost per unit stays flat regardless of volume, which holds up fine for a service business and less well for a manufacturer who gets bulk discounts. The contractor calculator's flat tax rates won't capture bracket creep, state tax, or itemized deductions specific to you. The valuation tool's low and high ranges are built by adding or subtracting 0.5 from the multiple you enter, a reasonable spread for a first estimate, not a substitute for a business appraiser who has actually reviewed your books. I'd rather state the limitation than let a calculator imply more precision than it has.
Tax figures like the self-employment rate don't change often, but they do change, and IRS thresholds get updated annually. I check the underlying rates at least once a year and sooner if a reader flags something that looks stale. When a page's numbers get reviewed, I update the "last updated" date to reflect that I actually checked the figures, not just touched the file.
If a formula looks wrong, or a calculator produces a number that doesn't match your own math, tell me directly. I read every message myself. When a correction is warranted I fix the calculator, note the update, and for anything that meaningfully changes a published result, I say so rather than quietly editing around it.
A handful of links on this site are affiliate links, and I may earn a commission if you click through and take an action on the destination site. That relationship never changes what a calculator outputs or which formula an article recommends. I'd rather lose the commission than publish a number I don't stand behind.
