Enterprise Value

The Formula

Enterprise Value = Equity Value + Debt − Cash

Or, solving for equity value (what the seller actually receives): Equity Value = Enterprise Value − Debt + Cash

When Enterprise vs. Equity Value Matters

In most simple SMB acquisitions, the seller delivers the business debt-free with a normalized working capital amount, and there's no distinction — enterprise value equals equity value. But the distinction matters when:

Existing debt transfers: If the seller has an SBA loan that the buyer assumes, the enterprise value stays constant but the equity value drops by the debt amount. The buyer is paying for the enterprise, but part of that payment goes to the lender, not the seller.

Excess cash: If the business has excess cash above the normalized working capital requirement, that cash adds to equity value — the seller keeps it or the buyer pays extra for it.

In an asset sale: Most SMB asset sales are negotiated on an enterprise value basis (this business, delivering X working capital, free of debt). The seller takes the cash and pays off any business debt.

Why Lenders Use Enterprise Value

SBA lenders underwrite to enterprise value, not equity value. When they model DSCR, they're comparing operating income to total debt service on the enterprise value loan — not just the buyer's equity contribution.