Equity & Ownership

Private Business Valuation

Understand private business valuation end to end — an inherently uncertain craft that yields a defensible range, not a point: pick the right normalized earnings measure, apply a comparables-based multiple, bridge to equity, and discount for the private-company realities (illiquidity, owner-dependence, concentration, book quality, size), then negotiate.

  • Intermediate
  • 16 min total
  • 13 chapters

What decision this helps you make: How to value a private business end to end — and why it's a defensible range, discounted for private-company realities, not a precise number.

What this topic is

Private business valuation is the craft of putting the valuation tools together to estimate what a privately-held business is worth: the right normalized earnings measure, a defensible comparables-based multiple, a bridge to equity value, and discounts for the private-company realities — producing a range, not a point.

Why it matters

It's harder than valuing a public company (no market price, imperfect information), so it yields a defensible range and the final price is negotiated. Naive multiples overstate value; private businesses must be discounted for illiquidity, owner-dependence, concentration, book quality, and size.

Who should learn it

Anyone buying, selling, or valuing a privately-held business.

What you will understand

  • Understand private valuation as a range-producing craft, not a precise number
  • Choose and normalize the right earnings measure (SDE small / EBITDA larger, cross-checked with owner earnings)
  • Apply a defensible comparables-based multiple and bridge to equity value
  • Discount for the private-company realities — then negotiate

Prerequisites

Common misconception

"Valuing a business is a precise calculation with one right answer." For a private business, it's an uncertain craft that yields a defensible range, not a point — there's no market price and the information is imperfect. You pick the right normalized earnings measure (SDE small / EBITDA larger, cross-checked with owner earnings), apply a comparables-based multiple, bridge to equity value, and — critically — discount for the private-company realities (illiquidity, owner-dependence, concentration, book quality, size). Then you negotiate, because the final price is what a specific buyer and seller agree on.