Phase 1 valuation methodology

ValuRight.ai estimates a planning range for a small business or owner-operated company. It is intended to help owners understand value drivers, buyer risk, and exit-readiness gaps.

The output is not a certified appraisal, fairness opinion, tax opinion, legal opinion, investment advice, financing commitment, or guaranteed sale price. A CPA, business broker, valuation professional, attorney, tax advisor, or lender should review the data and assumptions before anyone relies on the result.

The valuation engine uses the business profile, industry, business category, owner involvement, recurring revenue, customer concentration, documentation status, management depth, and historical financials.

Financial inputs include revenue, cost of goods sold, gross profit, operating expenses, owner compensation, add-backs, depreciation, amortization, interest, income taxes, net income, assets, liabilities, and debt. Imported or manually entered data is only as reliable as the source records and mapping choices.

EBITDA is calculated as net income plus interest, income taxes, depreciation, and amortization when those bridge inputs are available. If no bridge inputs are provided, the app may use the entered EBITDA value for that year.

SDE is calculated as EBITDA plus one working owner's compensation and buyer-acceptable one-time add-backs. Owner compensation is not included inside EBITDA, so it is not counted twice.

SDE multiple: Seller's Discretionary Earnings multiplied by an industry range. This is commonly used for owner-operated small businesses where a buyer expects to replace or perform the owner's role.

EBITDA multiple: EBITDA multiplied by an industry range. This is more relevant when a business is less dependent on the owner or can be run with hired management.

Revenue multiple: latest annual revenue multiplied by an industry range. This is a low-confidence sanity check because it does not account for profitability.

Simplified DCF: a five-year free cash flow projection using trailing revenue growth where available, a 20 percent discount rate, and a 2.5 percent terminal growth assumption. Limited or incomplete history lowers confidence.

Asset-based floor: total assets minus total liabilities, shown with a low/high range around net assets. This is most useful as a floor for asset-heavy companies and does not capture goodwill or earnings power.

Comparable sales placeholder: a provisional blend of SDE and EBITDA values discounted by 5 percent. It exists as a directional reference until a live comparable transaction database is connected.

Cap rate / income approach: stabilized NOI divided by a selected cap rate. This is used for income-producing real estate or property operating businesses such as RV parks and campgrounds.

Each multiple-based method starts with an industry low, median, and high assumption. The app shifts the selected multiple within that band using risk and quality factors. The method's low and high outputs are then calculated from the adjusted method range.

The dashboard range blends only the methods considered appropriate for the business category. Sanity checks and floors may be shown for context without driving the headline range.

Owner dependence can reduce multiples when the owner works many hours or controls sales, operations, and customer relationships. Lower owner dependence can increase confidence.

Recurring revenue, diversified customers, complete operating procedures, and a strong management team can improve the multiple selection. Customer concentration, weak documentation, thin management depth, or messy books can reduce confidence and the selected multiple.

Growth and margins affect methods differently. DCF uses trailing revenue growth when enough history exists. Earnings-based methods are sensitive to normalized EBITDA and SDE. Revenue multiples remain low-confidence if margins are weak or unknown.

Three years of consistent financial history improves the usefulness of the estimate. Missing years, negative or unusual values, incomplete balance sheet data, unmapped accounts, cash-basis versus accrual-basis differences, and undocumented add-backs can materially change results.

If owner compensation, add-backs, assets, liabilities, debt, interest, taxes, depreciation, or amortization are missing or mapped incorrectly, the valuation may overstate or understate business value.

Every dashboard method detail should show the formula, input used, multiple or cap-rate assumption, confidence level, and reasoning. The "Why this range?" section explains which methods contribute to the headline value range and which are shown only for context.

Before using a result for sale planning, financing, tax planning, investor discussions, or buyer negotiations, export the assumptions and review them with a qualified valuation professional, CPA, broker, or attorney.