Ask most owners what their company is worth and they will give you a revenue number. Ask a buyer the same question and they will start with EBITDA, apply a multiple, and then spend the next hour on adjustments. That gap is the subject of Episode 18 of Call to the Bullpen, where hosts Clint Overton and Ted Stann walk through the two numbers that matter at exit and how you get from one to the other.
What is the difference between enterprise value and equity value?
Enterprise value is a company’s EBITDA multiplied by an industry multiple; it measures what the whole operating business is worth to a buyer. Equity value starts from enterprise value, adds cash on the balance sheet, subtracts debt, and applies adjustments such as owner compensation add-backs. Equity value is the number the owner actually receives at sale.
The two are related, but they are not interchangeable, and owners who treat them as the same number tend to get surprised late in a deal. “When it’s all said and done, the equity value of your company is what is creating wealth for you,” says Ted Stann, co-founder of Boardroom Bullpen, whose background includes raising more than $300 million in capital, on Episode 18. Enterprise value is the headline. Equity value is the check.
Clint Overton, Managing Partner at Boardroom Bullpen, framed the episode around a simple test: “You have two $10 million revenue companies. Are those companies really going to see the same enterprise value?” The answer, as the rest of this post explains, is almost never.
How do you calculate enterprise value?
The enterprise value formula, as Stann laid it out on the show, is EBITDA multiplied by the multiple your industry commands. EBITDA is earnings before interest, taxes, depreciation, and amortization; the multiple is a market-driven number that varies by sector, growth profile, and risk.
His worked example: “Let’s say your industry is a 3x multiple, and so you’ve got two million dollars in EBITDA. You’ve got a 3x, so you’ve got a six million dollar enterprise value.”
Two things are worth noticing in that example. First, revenue never appears in the calculation. A $10 million company and a $20 million company with the same EBITDA and the same multiple have the same enterprise value. Second, the multiple is doing a lot of work. At $2 million in EBITDA, moving from 3x to 4x is a $2 million swing in enterprise value without changing a single operating result. Episode 18 spends a good portion of its runtime on what moves that multiple, which we cover in a companion post.
How do you get from enterprise value to equity value?
Equity value is enterprise value plus cash, minus debt, plus or minus normalizing adjustments. Each step is a balance sheet or compensation item rather than an income statement item, which is why owners who only watch the P&L miss it.
Stann walked through the sequence: “Now you have to look at how much cash do I have on my balance sheet because that’s going to be an add-back. How much debt do I have because that’s ultimately going to subtract from the enterprise value.”
Then come the adjustments. The most common one in owner-operated businesses is compensation. “If you’re a $10 million company and you’re paying yourself a million and a half dollars, there actually will be an add-back that you’ll see on that side of it,” Stann said. A buyer will replace the owner with a market-rate executive, so the difference between what the owner paid themselves and what that role should cost gets added back to earnings.
The result, in Stann’s words, “is ultimately what you’re looking at as, this is what I expect to receive from my business when I sell it.”
| Step | What happens | Where it lives |
|---|---|---|
| EBITDA × multiple | Enterprise value | Income statement |
| Add cash | Increases equity value | Balance sheet |
| Subtract debt | Decreases equity value | Balance sheet |
| Owner comp and other add-backs | Normalizes earnings up or down | Compensation records, P&L detail |
| Result | Equity value (what the owner receives) | Purchase agreement |
Why does revenue not appear in the formula?
Revenue is absent from the enterprise value formula because buyers pay for cash generation, not sales volume. Two companies with identical revenue can have very different EBITDA depending on gross margin, operating efficiency, and how much of that revenue actually reaches the bottom line.
Overton put it plainly: “Top line revenue is great conference conversation, happy hour conversation, coffee conversation.” It is the number everyone can relate to across industries, which is exactly why it dominates peer group chatter and why it is a poor proxy for value.
Stann described what happens on the income statement instead as a stair step. “We look at gross profit margin. We look at operating efficiency, which drops to operating profitability, and then gets into, okay, we’ve got our EBITDA.” Each step down that staircase is a place where two companies with the same top line separate. A business at 20% gross margin and a business at 30% gross margin, both at $10 million, are already millions apart in value before anyone talks about a multiple. Boardroom Bullpen’s earlier piece on the metrics that matter for growing businesses covers how to build that staircase into monthly reporting.
What do investors actually look at when they evaluate these numbers?
Investors evaluate enterprise value and equity value through the financial mechanics beneath them: gross margin by revenue line, operating leverage, EBITDA quality, cash conversion, and the specific adjustments they will need to make. They also evaluate whether the company can report those numbers reliably at all.
That last point came up repeatedly on Episode 18. “Are you even in a position to report some of these things?” Overton asked. His observation from years of working with owner-operators is that the businesses with the strongest sales often have the weakest visibility: “No matter how great you are at selling, we find a lot of businesses that have great top line revenue but really aren’t bringing a lot of cash to the bottom line. And sometimes it’s because they don’t have great visibility into where the money’s going.”
Stann added the detail that trips up many first-time sellers: the questions do not stop at revenue. A founder who opens an investor conversation with a top-line number will usually learn “the hard way” from the follow-up questions about margin, concentration, and cash. Having a finance leader who can answer those questions before they are asked is the difference between a smooth process and an 18-month cleanup. For companies that are not ready to hire a full-time CFO, fractional finance and accounting support is built for exactly this stage, and this overview of what a fractional CFO actually does shows where that role earns its keep.
How to get your business ready to calculate its real value
Both hosts were clear that the point of understanding these definitions is to act on them before a transaction, not during one. A practical sequence, drawn from the episode:
Know your gross margin by revenue line. Overton’s opening question to any owner planning growth: “Do I know what my actual gross profit margins are on all of my revenue lines?” Growing revenue at 25% margin and growing it at 50% margin produce very different enterprise values.
Build the stair step into your monthly reporting. Revenue, gross profit, operating profit, EBITDA. Stann’s advice is to “follow along on the income statement” so the path from top line to EBITDA is visible every month, not reconstructed at exit.
Clean up the balance sheet items. Cash, debt, and how equipment is depreciated all affect the bridge from enterprise value to equity value. Overton flagged depreciation specifically as a place where owner-operators are often loose.
Document owner compensation and other add-backs now. If your salary, family employees, or personal expenses run through the business, a buyer will normalize them. Do it first so the number is yours, not theirs.
Get someone who understands the mechanics. Overton’s diagnosis is that owner-operators “underinvest or wait really long to invest in somebody who understands all of the finance and accounting capabilities” needed for real visibility. That investment is what makes every number above trustworthy.
Owners who have already been through a transaction will recognize this list from the other side; the post-acquisition checklist covers what buyers scrutinize after close, which is a useful mirror for what they scrutinize before it.
FAQ
Is enterprise value the same as the sale price?
No. Enterprise value is the value of the operating business before accounting for its capital structure. The sale price an owner receives is closer to equity value, which adjusts enterprise value for cash, debt, and normalizing items such as owner compensation. Two companies with the same enterprise value can deliver very different proceeds to their owners depending on what is on the balance sheet.
What is an EBITDA multiple and who sets it?
An EBITDA multiple is the factor a buyer applies to a company’s EBITDA to arrive at enterprise value. There is a generic range for each industry, but the actual multiple a specific company receives moves up or down based on factors like contracted revenue, customer concentration, growth, and management depth. As Ted Stann put it on Episode 18, you cannot walk into a buyer and simply announce the multiple you expect.
What are add-backs in a business valuation?
Add-backs are adjustments that normalize a company’s earnings to reflect what a new owner would actually experience. Common examples include above-market owner compensation, one-time expenses, and personal costs run through the business. Add-backs increase adjusted EBITDA and therefore enterprise value, but only when they are documented and defensible.
Does cash on the balance sheet increase what I get at sale?
Generally yes. In the bridge from enterprise value to equity value, cash is added and debt is subtracted, so a business with cash and little debt delivers more to its owner than one with the same enterprise value and a leveraged balance sheet. The specifics depend on how the deal is structured, which is why owners should understand this bridge before negotiations begin.
Listen to the full episode
Episode 18 also covers what moves an EBITDA multiple up or down, why the market decides your exit timing, and the 18 to 24 months of preparation most owners discover they need. Listen to Episode 18 here: https://www.buzzsprout.com/2512653/episodes/19844999