⚠️ BETA FEATURE NOTICE
These features are currently in Beta and available only to select advisors. Functionality, workflows, and interface elements may change as improvements are made.
For more information about gaining access or to learn more about upcoming releases, please contact your Customer Success Manager or register for one of our product webinars under Events > Upcoming Webinars within the portal.
Frequently Asked Questions
Where can I access Estimate of Value?
You can access it from a contact’s profile in the Value Builder platform by selecting Add/Edit Estimate of Value.
What valuation methods are available?
You can choose between SDE, Adjusted EBITDA, or Revenue-based multiples depending on the business model and maturity of the company.
How is the Owner Replacement amount calculated in Seller’s Discretionary Earnings (SDE)?
Understanding how Owner Replacement is handled in Seller’s Discretionary Earnings (SDE) can feel confusing at first, especially when working through the differences between EBITDA, Adjusted EBITDA, and SDE. Here’s how it works step by step.
Step 1: Adjust EBITDA to reflect the market rate
When moving from EBITDA to Adjusted EBITDA, the owner’s compensation is adjusted to reflect what it would cost to hire someone at market rate to replace the owner.
This adjustment is calculated as:
Owner’s Compensation Market Adjustment = Owner’s Current Compensation – Cost to Replace Owner
Example:
- Owner’s Current Compensation: $130,000
- Market Rate to Replace Owner: $150,000
Since the market rate is higher, $20,000 is subtracted from EBITDA to arrive at Adjusted EBITDA. This reflects what a buyer would realistically expect to pay to replace the owner.
Step 2: Add back Owner Replacement to calculate SDE
When moving from Adjusted EBITDA to Seller’s Discretionary Earnings (SDE), the Owner Replacement amount is added back.
In this example:
- The market replacement cost ($150,000) is added back to Adjusted EBITDA.
- Because we previously subtracted $20,000 when adjusting to market rate, the net impact from EBITDA to SDE is $130,000, which matches the owner’s actual compensation.
No matter which method you use, the total owner-related impact included in SDE ultimately reflects the owner’s actual compensation, not an inflated amount.
If you prefer to calculate SDE directly from EBITDA, you can simply:
Add the Owner’s Current Compensation to EBITDA
Both methods produce the same result.
How do I override the multiple? And when should I override it?
You can override the multiple used from the in-app preview of the Estimate of Value. Click “Change” next to the multiple under Current Estimate of Value. Select “Override Multiples”. Enter the average multiple for the industry and the best-in-class multiple for the industry.
Only change this setting if you have done your own analysis of market comparables.
When is the 4-digit or 2-digit NAICS code used?
When less than 10 comparable transactions are found for a given NAICS code, we use the 4-digit or 2-digit NAICS code instead. You’ll see a message when this happens.
Why is median used instead of mean to calculate the average multiple?
Median is less sensitive to outliers than mean and is best practice in the industry.
How often are the multiples updated?
https://valuebuildersystem.zendesk.com/hc/en-us/articles/5023625569428-How-Often-Do-You-Update-Your-Valuation-Benchmarks
What is the weighted average in the financial summary?
The system calculates a weighted average across the financial data entered for multiple years to provide a more balanced estimate of value.
Does the Estimate of Value replace a formal valuation?
No. The Estimate of Value is designed as an advisory tool and does not replace a formal third‑party business valuation.
Why does the Value Builder Score Report now round to the nearest thousand instead of showing exact dollars?
Showing a value like "$1,482,317" implies a level of precision that business valuations simply don't have. Rounding to the nearest thousand (e.g., "$1,482,000") better communicates that this is an estimate, not an audited figure.
How can I have the analysis table be a part of the Value Builder Score Report?
You can find a toggle to enable or disable this table on the analysis page within the Estimate of Value exercise.