What is a business worth: the three most common methods
There is no single price for a private business. Buyers, investors and advisers usually triangulate three methods and negotiate within the range they produce.
1. Discounted cash flow (DCF)
Project the free cash flow for the next five years (EBITDA minus taxes and reinvestment), add a terminal value for the years after that, and bring everything to today at a discount rate that reflects the risk. It captures your growth plan, but small changes in the assumptions move the result a lot.
2. EBITDA multiple
Enterprise value = EBITDA × sector multiple. It is the market’s shortcut. Small private companies usually trade at lower multiples than large listed ones in the same sector.
3. Revenue multiple
Used when profits are still small or unstable, common in technology and subscription businesses. It ignores margins, so use it as a cross-check.
From enterprise value to equity
Equity value = enterprise value − net debt, minus a discount for size and liquidity. A buyer takes over the debts and keeps the cash.
| Item | Value |
|---|---|
| EBITDA | $300,000 |
| Multiple | 6× |
| Enterprise value | $1,800,000 |
| Net debt | $200,000 |
| Size discount (20%) | $320,000 |
| Equity value | $1,280,000 |
What raises the value
Recurring revenue, diversified customers, stable margins, processes that do not depend on the owner and clean financial records. For a sale, a partner buyout or a legal dispute, hire a professional valuation.