Corporate Finance & M&A Decision Lab

Business Valuation & Deal Multiples Lab

Calculate small business enterprise value using Seller's Discretionary Earnings (SDE), EBITDA multiples, and 5-year Discounted Cash Flow (DCF). Model seller financing and debt coverage (DSCR).

Valuation Model Deal Structure & DSCR Valuation Theory FAQ

Industry Valuation Presets

Load calibrated earnings multiples and cash flow profiles.

Step 1: Earnings & Cash Flow Assumptions

Financial Statements & Valuation Multiples

1. Earnings & SDE Add-Backs

$
$
$
$

2. 5-Year DCF Parameters

$
%
%
%
%
%
SDE Cash Flow
$0
Multiple Valuation
$0
5-Year DCF Value
$0
Blended Valuation
$0
Debt Coverage (DSCR)
0.00x
Post-Debt Cash Flow
+$0/yr

Step 2: Acquisition Financing

Deal Structuring & Debt Service Coverage

Simulates acquisition cash down payments, seller financing debt service obligations, and remaining cash flow for the buyer.

Deal Element Amount ($) Share / Rate Financing Notes

M&A Valuation Guide

Understanding business valuation methods

Valuing a private business requires blending market multiples with intrinsic discounted cash flow models.

  • SDE vs. EBITDA: SDE adds back owner compensation, reflecting what an individual buyer earns. EBITDA is used for larger companies with professional managers.
  • Multiple Drivers: Multiples increase with customer diversification, recurring revenue, proprietary systems, and clean financial records.
  • The 1.25x DSCR Hurdle: Commercial banks and the SBA require cash flow to cover debt service by at least $1.25 for every $1.00 of debt service.

Test pro-forma cash flow forecasts in the 12-Month Pro-Forma Generator or model unit economics in the Unit Economics Lab.

M&A Formulas

Valuation equations

SDE = Reported Net Income + Owner Salary + Non-recurring Add-backs

Multiple Valuation = SDE (or EBITDA) × Industry Multiple

Terminal Value (DCF) = (FCF₅ × (1 + Terminal Growth %)) ÷ (Discount % − Terminal Growth %)

Debt Service Coverage (DSCR) = Annual SDE ÷ Annual Principal & Interest

Test strategic decision-making in the Motel Simulator and Restaurant Simulator.

FAQ

Business valuation questions

What is Seller's Discretionary Earnings (SDE)?

SDE is the total financial benefit a single full-time owner-operator derives from a small business. It is calculated by taking net pre-tax profit and adding back owner compensation, non-essential personal expenses, and non-recurring one-time costs.

What is the difference between SDE and EBITDA?

SDE includes the owner's salary and is used for owner-operated small businesses (typically under $5M revenue). EBITDA assumes a professional management team is already paid as operating expense and is used for larger middle-market companies.

How does Discounted Cash Flow (DCF) valuation work?

DCF estimates the present value of all expected future free cash flows discounted at the company's cost of capital (WACC), plus the discounted terminal value representing the business in perpetuity.

What is Debt Service Coverage Ratio (DSCR) in an acquisition?

DSCR measures whether business cash flow can cover annual principal and interest loan payments. Commercial lenders and the SBA generally require a minimum DSCR of 1.25x to approve acquisition loans.

Can I export business valuation models to CSV?

Yes. You can export the complete multi-method valuation model and deal structure summary as a UTF-8 CSV spreadsheet with formula injection defense or print an executive brief.

Are these calculations formal appraisal or investment advice?

No. This tool provides simplified educational models for corporate finance practice without formal certified appraisal standards (USPAP), quality of earnings audits, or tax diligence.

Continue Exploring Business Strategy Tools

Explore our Strategy & Decision-Making Games Hub, model working capital in the Cash Conversion Cycle Simulator, simulate price elasticity in the Pricing Strategy Simulator, or generate 12-month projections in the Pro-Forma Financial Model Generator.