Enterprise value
The value of the business itself, independent of how it is financed — and not the amount the seller receives.
Also called: EV · Total business value
Enterprise value is what the operating business is worth: earnings multiplied by a multiple, before any adjustment for the cash in the account or the debt against the equipment. It is the headline number in a letter of intent and the number sellers repeat to friends, which is exactly why the gap between it and the wire at closing causes so much disappointment.
Equity value — the seller's side of the equation — is enterprise value plus cash, minus debt and debt-like items, plus or minus a working capital adjustment. Debt-like items are where sellers get surprised: accrued vacation, deferred revenue for work not yet performed, unpaid taxes, capital leases, and earn-out obligations from an earlier acquisition all commonly get treated as debt.
Then transaction costs and taxes come out. Between enterprise value in the LOI and money in the seller's account, it is normal for the difference to be large, and for a meaningful part of what remains to be deferred into escrow, a seller note, or an earnout. Modelling that bridge early, with an accountant, is the difference between an informed decision and a shock at signing.
The bridge from enterprise value to seller proceeds
Enterprise value: 5,000,000
Plus cash on the balance sheet: 220,000
Less bank debt and capital leases: (900,000)
Less debt-like items (accrued PTO, deferred revenue): (160,000)
Working capital adjustment vs peg: (85,000)
Equity value at close: 4,075,000
Advisory fees, legal costs, escrow, any seller note, and tax still come out of that figure.
Where sellers get caught
- Reading the LOI headline as your take-home number.
- Assuming cash in the business is automatically yours — it depends on whether the deal is structured cash-free debt-free.
- Ignoring deferred revenue in a business that collects annually in advance. It is real money owed in service, and buyers treat it as debt.
Common questions
Is enterprise value what I get paid?
No. Equity value is closer, and even that is before fees, taxes, escrow, and any deferred consideration. The two numbers can differ by a wide margin.
Do I keep the cash in the business?
In a cash-free debt-free deal, yes — you sweep the cash and repay the debt at close, and the enterprise value is unaffected. Outside that convention it has to be negotiated explicitly, so check which convention the LOI uses.
Related terms
Cash-free debt-free
A pricing convention where the seller keeps the cash and clears the debt at closing, and the agreed enterprise value assumes neither is present.
Net working capital
Current assets less current liabilities, excluding cash and debt — the operating fuel a buyer expects to be delivered with the business.
Working capital peg
The agreed level of net working capital the business must have at closing, with any shortfall or excess settled in cash afterwards.
EBITDA multiple
The factor applied to adjusted earnings to produce enterprise value, set mainly by size, industry, growth, and how dependent the business is on its owner.
Discounted cash flow
A valuation method that projects future free cash flow and discounts it to present value at a rate reflecting the risk of those cash flows.
Guides that use this term
Where enterprise value comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.