How Private Equity Values Your Business — And What You Can Do About It Now
- Erik James Roberts, Founder & Chief Investment Officer | Infinitus Wealth Management
- 1 day ago
- 6 min read
Most founders learn how private equity values your business at the worst possible moment — when a term sheet is already on the table and the inputs are locked. By then the multiple has been set, diligence is underway, and the levers that move value most are out of reach. Understanding how private equity values your business years before you take a single meeting is what separates owners who sell on their own terms from those who simply react to an offer.
I spent years valuing companies as a top wealth advisor and at the top finance school in the world, The Wharton School of the University of Pennsylvania, and I now see private and venture deal flow through a network built over years on Wall Street and at Wharton. That vantage point makes one thing clear: a private-equity valuation is not a mystery or a verdict on your life's work. It's a formula — one with a handful of variables you can influence long before a buyer ever runs the math.
01 / The Formula
The Number Behind the Price: How Private Equity Values Your Business
At its core, the math is simple. A buyer estimates your normalized, ongoing cash earnings — usually adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) — and multiplies it by a number, the multiple, to arrive at enterprise value. Two inputs, one product. Everything else in a deal is a negotiation around those two numbers and how the proceeds get split.
The multiple isn't arbitrary. It reflects what comparable businesses have recently sold for, adjusted for your size, sector, growth, and risk. As of 2026, private-equity entry pricing in the middle market has held in a band of roughly 7.2–7.5x EBITDA, while smaller lower-middle-market companies more often trade in a 4–8x range depending heavily on industry. Larger platforms command far more — frequently 11–15x — which is precisely why so much PE strategy revolves around buying small companies and combining them.
02 / The EarningsAdjusted EBITDA and the Quality-of-Earnings Test
Before a buyer applies any multiple, they rebuild your earnings. Owner-operated businesses are full of expenses that wouldn't exist under new ownership — an above-market owner salary, a family member on payroll, the boat, the country-club membership, one-time legal costs. Adding these back to profit produces adjusted EBITDA, and it's almost always higher than the net income on your tax return.
Here's the catch: the buyer doesn't take your addbacks on faith. They commission a quality-of-earnings (QoE) analysis — a forensic scrub of your financials by an accounting firm whose job is to find reasons your real, sustainable earnings are lower than you claim.
Aggressive or poorly documented addbacks get thrown out, and every dollar of EBITDA they disallow gets multiplied. At a 6x multiple, a single disputed $200,000 addback isn't a $200,000 argument — it's a $1.2 million swing in price. Clean, defensible, well-documented earnings are the foundation of every strong valuation.
03 / The Multiple
What Actually Moves Your Multiple
Two businesses with identical EBITDA can sell for double or half of one another. The difference is the multiple, and the multiple is a measure of risk and durability. Buyers pay up for earnings they believe will still be there — and still be growing — after you're gone.
This is where many Nashville owners I speak with — in healthcare services, technology, and the businesses that orbit the music and entertainment economy — leave real money on the table. A practice or platform that runs entirely through the founder is worth meaningfully less than the same earnings inside a business that can clearly operate without them.
04 / The Structure
Why the Headline Price Isn't What You Take Home
Enterprise value is the number that gets quoted at the dinner party. It is not the number that hits your account. Between the headline price and your actual proceeds sits a series of deductions and structures that can quietly move millions.
The negotiation everyone watches is the multiple. The negotiation that often matters more is everything that happens to the price after it's set.
An earnout ties part of your price to future performance — useful for bridging a valuation gap, but only as good as the targets and the controls behind them. Rollover equity keeps you invested alongside the buyer; it can be lucrative, or it can be a second bet on a business you no longer control. None of this is inherently good or bad — but each term is a place where understanding how private equity values your business, and structures around that value, protects what you've built.
05 / The Playbook
What You Can Do Now to Change How Private Equity Values Your Business
The owners who command premium valuations almost never do it in the final 90 days. They do it in the 12 to 24 months before a process even begins. The good news: the levers are largely within your control.
Concretely: tighten your financial reporting until it's audit-ready; reduce dependence on any single customer, supplier, or on yourself; document the recurring and contracted portion of your revenue; normalize your addbacks so they're defensible under scrutiny; and assemble your advisory team — M&A counsel, a transaction-focused accountant, and a wealth advisor — well before you need them. Each of these moves either raises adjusted EBITDA, supports a higher multiple, or protects proceeds in the structure.
06 / After the Wire
The Part Most Owners Get Wrong
Here's the truth I care about most as an investment manager: the largest single financial event of your life doesn't end when the business sells — that's when the hardest part begins. In an instant, decades of value locked inside one illiquid, concentrated asset becomes liquid capital that has to be stewarded. And far too often, that capital is either left idle, eroded by taxes that could have been planned for, or rushed into complex, illiquid investments the seller doesn't fully understand.
This is the work Infinitus is built for. We aren't business brokers or investment bankers — we're the independent, fee-only fiduciary that takes the proceeds and builds them into a durable portfolio of individual stocks and bonds, actively managed and tailored to you, rather than parked in generic model allocations.
For owners holding rollover equity or a concentrated post-sale position, we use disciplined options strategies — protective puts and collars — to manage that risk deliberately. And we're candid about what we won't do: we treat illiquid, opaque alternatives with healthy skepticism, because the liquidity and control you just fought to create are worth protecting, not surrendering.
Talk to Infinitus About Building Your Custom Portfolio
At Infinitus Wealth Management, we build every client a custom portfolio from individual stocks and individual bonds—never mutual funds, rarely an ETF—actively managed and hedged with options where it strengthens the portfolio. We are an independent, fee-only fiduciary: no commissions, no proprietary products, no conflicts pulling against you. Our twelve proprietary strategies give us the range to tailor a portfolio to your tax situation, income needs, and goals, whether you are early in building serious wealth or managing well into eight figures.
If you would like a clear-eyed look at how your current portfolio is actually structured—what it is costing you in fees and tax drag, whether it is being managed at the level of individual holdings, and whether your advisor’s incentives are genuinely aligned with yours—we welcome the conversation. Our complimentary portfolio analysis gives you an objective, holding-level assessment and a direct view of what a custom Infinitus portfolio would look like for you.
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Important Disclosures
Infinitus Wealth Management is a registered investment advisory firm. This article is provided for educational and informational purposes only and does not constitute investment, tax, legal, or accounting advice. It is not an offer or solicitation to buy or sell any security or to enter into any advisory relationship. Any references to specific strategies, withdrawal rates, tax provisions, or historical figures are general in nature and may not be appropriate for any individual investor.
Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. Tax laws are complex, change frequently, and have unique application to individual circumstances; please consult a qualified tax professional regarding your specific situation. Social Security rules, Medicare rules, and retirement account regulations are subject to legislative and regulatory change.
The information in this article was believed to be accurate at the time of writing but is not guaranteed. Readers should consult with their own qualified advisors before making any financial decisions specific to their situation.
