The Complete Guide to Private Company Valuation-Methods, Formulas and Practical Insights

Private company valuation has always been more art than science. Unlike public companies with transparent market prices, private firms operate behind a veil of limited disclosure. Yet whether you're a business owner contemplating an exit, a banker sourcing deals, or a wealth advisor evaluating investment opportunities, understanding how to value private companies is essential.

The challenge isn't just the math—it's finding reliable data to plug into the formulas. This guide walks you through the core valuation methods, industry-specific considerations, and practical strategies for estimating value when information is scarce.

Why Private Company Valuation is Uniquely Challenging

The fundamental problem with valuing private companies is information asymmetry. Public companies publish quarterly financials, host earnings calls, and trade on liquid markets that provide real-time price discovery. Private companies do neither.

This creates three core challenges:

Limited Financial Disclosure: Most private companies don't publicly report revenue, EBITDA, or growth rates. Even when they do share financials with potential buyers or investors, the data is often unaudited and inconsistent.

Illiquid Markets: There's no ticker symbol or daily closing price. Private company transactions happen infrequently, and deal terms often remain confidential.

Lack of Comparable Transactions: Finding truly comparable companies—similar size, industry, growth profile, and geographic footprint—is difficult even with access to deal databases.

Despite these obstacles, sophisticated buyers and sellers arrive at valuations every day using established methodologies and creative data-gathering techniques.

The Three Core Valuation Approaches

1. Revenue Multiple Method

The Formula: Enterprise Value = Revenue × Industry Multiple

The revenue multiple approach is the most accessible valuation method, particularly useful for early-stage companies or industries where profitability varies widely.

The mechanics: Multiply a company's annual revenue by an industry-specific multiple to estimate enterprise value. A SaaS company generating $5M in recurring revenue might trade at 3-5x revenue, implying a valuation of $15-25M.

Best used for:

• Early-stage or high-growth companies not yet profitable
• Industries with standardized business models (SaaS, e-commerce, professional services)
• Quick preliminary valuations or sanity checks

Industry Callout - SaaS: Software companies with recurring revenue often command premium multiples (2-10x revenue) based on growth rate, customer retention, and gross margins. A SaaS company growing 40%+ annually with 90%+ gross margins might trade at 6-8x revenue, while a slower-growth competitor at 10% might see 2-3x.

The catch: Revenue multiples ignore profitability entirely. A company with $10M in revenue but losing $3M annually shouldn't be valued the same as one generating $2M in profit.

2. EBITDA Multiple Method

The Formula: Enterprise Value = EBITDA × Industry Multiple

This is the gold standard for most middle-market private company valuations, especially for mature, profitable businesses.

The mechanics: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) represents operating profitability before capital structure and accounting decisions. Multiples typically range from 4-12x depending on industry, size, and growth profile.

Best used for:

• Established, profitable companies with stable cash flows
• Manufacturing, distribution, and traditional service businesses
• Private equity and strategic acquisition analysis

Example: A regional HVAC distributor with $2.5M in EBITDA might trade at 5-6x, implying a $12.5-15M valuation. A similar-sized medical device distributor could command 7-8x due to favorable industry dynamics and recurring revenue from consumables.

Industry Callout - Manufacturing: Traditional manufacturers typically trade at 4-7x EBITDA, with significant variance based on customer concentration, equipment age, and competitive moat. Companies with proprietary technology or exclusive distribution rights can command premium multiples of 8-10x.

Important adjustments: EBITDA often requires normalization—adding back owner compensation above market rates, one-time expenses, or non-operating income. An owner paying themselves $500K when the market rate is $200K creates $300K in "add-back" EBITDA.

3. Discounted Cash Flow (DCF) Method

The Formula: Enterprise Value = Σ [Future Cash Flows / (1 + Discount Rate)^n] + Terminal Value

The DCF approach values a company based on its projected future cash flows, discounted back to present value.

The mechanics: Forecast free cash flow for 5-10 years, discount those cash flows using a weighted average cost of capital (WACC), and add a terminal value representing cash flows beyond the forecast period.

Best used for:

• Companies with predictable, long-term cash flows
• Situations where comparable transactions are limited
• Internal investment decisions or fairness opinions

Industry Callout - Professional Services: Consulting firms, law practices, and accounting firms often rely on DCF analysis because their value is heavily dependent on client relationships and key personnel retention. A 10-year forecast with conservative assumptions about client attrition helps capture this risk.

The weakness: DCF is only as good as your assumptions. Small changes in growth rates or discount rates can swing valuations by 30-40%. It's also heavily dependent on management projections, which tend toward optimism.

Industry-Specific Valuation Considerations

While the core methods apply broadly, valuation multiples and approaches vary significantly by industry:

Technology & SaaS: Revenue multiples dominate, with heavy emphasis on recurring revenue, net retention rates, and customer acquisition costs. Rule of 40 (growth rate + profit margin ≥ 40%) often guides valuations.

Healthcare Services: EBITDA multiples are standard, but regulatory risk, reimbursement trends, and physician relationships heavily influence values. Home health agencies might trade at 6-8x EBITDA while specialty practices command 10-12x.

Distribution & Wholesale: Multiples cluster tightly around 4-6x EBITDA, with premiums for exclusive distribution rights, sticky customer relationships, or niche market leadership.

Consumer & Retail: Valuation depends heavily on whether the business is brand-driven (higher multiples) or commodity-driven (lower multiples). E-commerce businesses with strong direct-to-consumer brands can trade at 3-5x revenue, while traditional retail sees 0.3-0.8x revenue multiples.

Finding the Data: Practical Strategies for Valuation Research

The biggest challenge in private company valuation isn't the formula—it's finding reliable inputs. Here are proven strategies:

Start with Public Company Comparables
Identify public companies in similar industries and extract their trading multiples. While public companies trade at premiums to private peers (liquidity premium), they provide a useful starting point. Apply a 20-30% discount for lack of marketability.

Leverage Transaction Databases
Deal databases capture M&A transaction multiples, though smaller deals ($5-50M) are often underreported. For companies in the $1M-100M revenue range, comprehensive databases become essential—tracking not just headline multiples but detailed financial metrics like growth rates and profitability.

Talk to Business Brokers and Bankers
Intermediaries who close deals in your target industry have current market intelligence on multiples, buyer appetite, and typical deal structures. A 15-minute conversation can provide more insight than hours of desktop research.

Use Industry Association Data
Trade associations often publish benchmarking data including typical valuation multiples for their sector. These reports aggregate real transaction data while maintaining confidentiality.

Triangulate Multiple Methods
Never rely on a single valuation method. Calculate value using revenue multiples, EBITDA multiples, and (if applicable) DCF. The range of outcomes tells you more than any single number.

Valuation Hacks: Shortcuts and Rules of Thumb

Experienced practitioners develop shortcuts that work surprisingly well:

The 3x Rule for Service Businesses: Many professional service firms (marketing agencies, consultancies, staffing firms) trade at roughly 3x EBITDA, with adjustments for client concentration and owner involvement.

SaaS Quick Valuation: Take annual recurring revenue, multiply by (growth rate ÷ 20). A $4M ARR company growing 60% is worth roughly $12M ($4M × 3). This crude formula surprisingly tracks venture-backed SaaS valuations.

Main Street Multiple: Small businesses with owner-operators typically trade at 2.5-3.5x seller's discretionary earnings (SDE = EBITDA + owner compensation). This works for restaurants, local service businesses, and small retail.

Asset-Heavy Businesses: For distributors, manufacturers with significant equipment, or real estate-intensive businesses, calculate book value × 1.5 as a floor valuation. Rarely will a profitable business sell below this threshold.

Common Pitfalls to Avoid

Comparing Apples to Oranges: A $50M revenue software company and a $50M revenue construction firm shouldn't use the same multiples. Industry dynamics, capital intensity, and margin profiles matter enormously.

Ignoring Working Capital: Enterprise value is not the same as purchase price. Buyers typically require normalized working capital, which can add or subtract 10-20% from headline value.

Overlooking Quality of Earnings: Revenue and EBITDA quality vary. Recurring revenue is worth more than one-time project revenue. Diversified customer bases trump concentration. Adjust multiples accordingly.

Confusing Enterprise Value and Equity Value: Enterprise value represents the entire business. To get equity value, subtract net debt. A $20M enterprise value company with $5M in debt has $15M equity value.

How to Approach Valuation with Limited Information

When you can't access full financials, build estimates using available proxies:

Estimate Revenue from Employee Count: Most industries have typical revenue per employee ratios. A 50-person software company likely generates $7-15M in revenue ($150-300K per employee). A manufacturing company might be $200-400K per employee.

Back into EBITDA from Industry Benchmarks: If you know revenue and typical EBITDA margins for the industry (often 10-15% for established businesses), you can estimate profitability.

Use Location and Facility Size as Proxies: A distribution company in a 100,000 sq ft warehouse likely does $20-40M in revenue. Industry-specific rules of thumb exist for most sectors.

Research Funding Rounds: For venture-backed companies, funding round amounts and valuations are often partially disclosed. A Series B at $50M post-money valuation provides a baseline.

This is where comprehensive private company databases become invaluable—providing verified financials, historical performance, and comparable transaction data for companies operating below the public markets radar.

Putting It All Together: A Practical Framework

Here's how to approach a real-world valuation:

Define the Business: Understand the revenue model, customer base, geographic footprint, and competitive position. Context matters as much as numbers.

Gather Financial Data: Obtain at minimum three years of revenue and profit metrics. If full financials aren't available, estimate using the techniques above.

Identify Comparables: Find 5-10 comparable companies or transactions. Sort by size, growth profile, and business model similarity.

Calculate Multiple Approaches: Run revenue multiples, EBITDA multiples, and (if appropriate) DCF. This gives you a valuation range rather than a point estimate.

Adjust for Company-Specific Factors: Apply premiums or discounts based on management quality, customer concentration, competitive moat, or growth trajectory.

Sanity Check: Does the valuation make sense relative to similar deals you've seen? Would a strategic or financial buyer realistically pay this price?

A middle-market HVAC distributor generating $25M revenue and $3M EBITDA might reasonably be valued at $15-18M (5-6x EBITDA), assuming normalized working capital and no significant customer concentration issues.

The Bottom Line

Private company valuation remains as much art as science, but understanding the core methodologies—revenue multiples, EBITDA multiples, and DCF—provides a solid foundation. The real skill lies in finding reliable data, making intelligent adjustments for company-specific factors, and triangulating multiple approaches to arrive at a defensible range.

For business owners, knowing these methods helps you understand what buyers will pay and how to position your business for maximum value. For bankers and advisors, mastering valuation techniques separates generalists from trusted experts who can spot undervalued opportunities and structure compelling deals.

The companies creating the most value today aren't the ones with the fanciest models—they're the ones with the best data, the deepest industry knowledge, and the judgment to know when the numbers tell the real story and when they don't.

Looking to research private company valuations with verified financial data? PrivCo provides detailed financial profiles, historical performance metrics, and comparable transaction data for over 900,000 U.S. private companies—especially those in the $1M-$100M revenue range often overlooked by other platforms. Learn more about PrivCo