Calculate private company DCF valuation with professional accuracy.
Our free DCF calculator for private companies uses specialized adjustments for illiquidity premiums, small company premiums, and normalized financial statements - the same methodology trusted by investment bankers and private equity professionals.
Get instant private company valuations with our discounted cash flow calculator private company - no spreadsheets, no complex formulas, just professional-grade results in seconds.
Pro Tip: Private Company Valuation Differences
According to Mergers & Inquisitions, private companies should be worth less than public companies due to higher risk, less-diverse ownership, and lower liquidity. The discount rate should be higher for private companies, especially for "Money Businesses" that are dependent on key individuals.
Why Private Company DCF is Different
Private company valuation requires special considerations that public company DCF models don’t account for. As explained by Mergers & Inquisitions, private companies fall into three categories:
- Money Businesses: Small businesses dependent on the owner (barber shop, doctor’s office)
- Meth Businesses: Venture-backed startups seeking rapid growth (tech startups)
- Empire Businesses: Large private companies that resemble public companies (Ikea, Cargill)
Our discounted cash flow calculator private company helps you:
- Apply illiquidity premiums (typically 2-5% additional discount rate)
- Add small company premiums for smaller businesses
- Normalize financial statements for owner compensation and personal expenses
- Adjust terminal value for private company risk
- Calculate accurate private company valuations
Key Takeaways
- Private Company Adjustments - Illiquidity and small company premiums built-in
- Normalized Financials - Adjusts for owner compensation and personal expenses
- Higher Discount Rates - Accounts for private company risk
- Terminal Value Adjustments - Conservative terminal value for private companies
- Free Private Company DCF - No registration or payment required
⚠️ The Hidden Problem Most Private Company Valuations Miss
Most private company valuations use public company assumptions - and that’s a huge mistake.
Here’s what you’re missing:
- Private companies typically need 2-5% higher discount rates than public companies
- Small businesses may need 25-50% discounts to public comp multiples
- Owner-dependent businesses may have negative terminal value if the owner leaves
- Financial statements often need normalization for owner perks and personal expenses
This calculator applies the correct private company adjustments - and shows you exactly how much these adjustments impact valuation.
💡 Why This Matters
Most analysts: Use public company DCF assumptions for private companies
Smart analysts: Apply private company adjustments (illiquidity premiums, normalization)
The difference: Can mean 20-40% valuation differences - critical for M&A and investment decisions
🎯 Private Company DCF Calculator
💰 Private Company DCF Calculator
Professional discounted cash flow calculator with private company adjustments
Select Company Type
Money Businesses are small businesses dependent on the owner (e.g., barber shop, doctor's office). These require the highest discounts and adjustments.
📊 Cash Flow Projections
🎯 Valuation Parameters
🔧 Private Company Adjustments
📋 Get Your Free Private Company Valuation Checklist
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What is Private Company DCF Valuation?
Private company DCF valuation uses the same discounted cash flow methodology as public companies, but with critical adjustments for private company risk. According to Mergers & Inquisitions, the key difference is that private companies should be worth less than public companies due to:
- Higher risk: Less diversification, dependency on key individuals
- Lower liquidity: Shares cannot be easily bought or sold
- Less-diverse ownership: Concentrated ownership increases risk
Three Types of Private Companies
As explained by Mergers & Inquisitions, private companies fall into three categories:
1. Money Businesses
Small businesses dependent on the owner (e.g., barber shop, doctor’s office, consulting firm).
Characteristics:
- Owner highly involved in day-to-day operations
- Business may not survive if owner leaves
- Run for cash-flow purposes (not growth or sale)
- Valuation adjustments: 25-50% discounts, 3-5% illiquidity premium, heavy terminal value discounts
2. Meth Businesses (Startups)
Venture-backed startups seeking rapid growth (e.g., tech startups, biotech companies).
Characteristics:
- Goal is to get big quickly and exit (IPO or acquisition)
- May be cash-flow negative but growing rapidly
- Building management team and corporate structure
- Valuation adjustments: 10-20% discounts, 2-3% illiquidity premium, moderate terminal value adjustments
3. Empire Businesses
Large private companies that resemble public companies (e.g., Ikea, Cargill, Koch Industries).
Characteristics:
- Large, diverse management teams
- Strong controls and processes
- Profitable and could be public if desired
- Valuation adjustments: 3-5% discounts, 1-2% illiquidity premium, minimal terminal value adjustments
Key Private Company DCF Adjustments
1. Discount Rate Adjustments
Illiquidity Premium: Add 2-5% to base discount rate
- Money Businesses: 3-5%
- Meth Businesses: 2-3%
- Empire Businesses: 1-2%
Small Company Premium: Add 0-4% for smaller companies
- Based on company size relative to public comps
- Larger premiums for smaller companies
Final Adjusted Discount Rate: Base WACC + Illiquidity Premium + Small Company Premium
- Typical range: 12-18% for most private companies
- Money Businesses: Often 15-20%
- Empire Businesses: Often 10-12%
2. Financial Statement Normalization
Private company financial statements often need normalization:
Owner Compensation: Add back excess owner salary/bonuses
- Owner may pay themselves above/below market rates
- Normalize to market-rate compensation
Personal Expenses: Add back personal expenses disguised as business expenses
- Personal travel, cars, family on payroll
- These should be added back to cash flow
Tax Adjustments: Adjust to corporate tax rates
- Small businesses often taxed at personal income tax rates
- Acquirer would use corporate tax rates
3. Terminal Value Adjustments
For Money Businesses, terminal value requires special treatment:
Option 1: Heavily Discount Terminal Value
- Apply 25-50% discount to calculated terminal value
- Reflects risk that business may not survive without owner
Option 2: Use Liquidation Value
- Estimate future liquidation value instead of terminal value
- More conservative but realistic for owner-dependent businesses
Option 3: Assume FCF Declines to Zero
- Project cash flows until business declines
- No terminal value - business eventually shuts down
How to Use Private Company DCF Calculator
Step 1: Select Company Type
Choose the type of private company:
- Money Business: Small, owner-dependent
- Meth Business: Venture-backed startup
- Empire Business: Large, diversified
The calculator automatically adjusts default premiums based on company type.
Step 2: Enter Cash Flow Projections
- Current Free Cash Flow: Most recent annual FCF (normalized)
- Growth Rate: Expected annual growth
- Forecast Period: Typically 5-10 years
- Terminal Growth Rate: Typically 2-3%
Step 3: Set Valuation Parameters
- Base Discount Rate (WACC): Starting discount rate before adjustments
- Illiquidity Premium: Additional premium for lack of liquidity (2-5%)
- Small Company Premium: Additional premium for small size (0-4%)
Step 4: Apply Private Company Adjustments
- Terminal Value Discount: Discount to apply to terminal value (0-50%)
- Owner Compensation: Excess compensation to add back
- Personal Expenses: Personal expenses to add back
Step 5: Calculate and Review
The calculator will:
- Calculate adjusted discount rate
- Apply terminal value discounts
- Normalize cash flows
- Display enterprise value, equity value, and per-share value
Private Company DCF Best Practices
- Normalize financial statements first: Adjust for owner compensation and personal expenses
- Use appropriate discount rates: Apply illiquidity and small company premiums
- Adjust terminal value: Apply discounts for Money Businesses
- Use multiple scenarios: Base case, upside, downside
- Cross-validate with other methods: Compare to comps and precedents
- Consider company type: Different adjustments for Money vs. Meth vs. Empire Businesses
Common Private Company DCF Mistakes
- Using public company WACC: Private companies need higher discount rates
- No illiquidity premium: Must account for lack of liquidity
- Ignoring normalization: Financial statements often need adjustments
- Terminal value too high: Money Businesses need heavy terminal value discounts
- Single scenario: Always run multiple scenarios for private companies
FAQs - Frequently Asked Questions About Private Company DCF Valuation
Why do private companies need different DCF assumptions?
Private companies have higher risk, lower liquidity, and less-diverse ownership than public companies.
These factors require adjustments to discount rates and terminal value to reflect the additional risk.
Learn More...
According to Mergers & Inquisitions, private companies should be worth less than public companies due to higher risk, less-diverse ownership, and lower liquidity.
Private companies face unique challenges that public companies don't:
- Inability to easily buy or sell shares (illiquidity)
- Less diversification for investors
- Dependency on key individuals (especially for small businesses)
- Limited access to capital markets
- Less regulatory oversight and disclosure
These factors increase risk, which must be reflected in higher discount rates.
The discount rate should be higher for a private company because investors take on more risk.
For Money Businesses (small, owner-dependent companies), the risk is even higher because the business may not survive if the owner leaves.
Even for large private companies (Empire Businesses), there's still some discount for lack of liquidity compared to public companies.
What is an illiquidity premium?
An illiquidity premium is an additional discount rate premium (typically 2-5%) that accounts for the inability to easily buy or sell private company shares.
It compensates investors for the lack of liquidity in private company investments.
Learn More...
Illiquidity premium is added to the base discount rate to reflect the additional risk of not being able to quickly exit a private company investment.
Unlike public company stocks that can be sold instantly on stock exchanges, private company shares cannot be easily bought or sold.
The premium varies by company type:
- Money Businesses: 3-5% (highest risk, most illiquid)
- Meth Businesses (Startups): 2-3% (moderate risk, some liquidity through secondary markets)
- Empire Businesses: 1-2% (lowest risk, may have some liquidity options)
The premium reflects the time and effort required to find a buyer for private company shares.
It also accounts for the potential discount you might have to accept to sell quickly if needed.
According to Mergers & Inquisitions, you almost always apply a private company or 'illiquidity' discount, which often ranges from 10% to 30%, to public company multiples.
The illiquidity premium in the discount rate is one way to account for this risk.
How much should I discount terminal value for private companies?
It depends on company type: Money Businesses (25-50%), Meth Businesses (10-20%), Empire Businesses (0-5%).
The discount reflects the risk that the business may not survive or generate cash flows as projected.
Learn More...
Terminal value discounts are especially important for Money Businesses that are dependent on key individuals.
According to Mergers & Inquisitions, for Money Businesses, you might discount terminal value by 25%, 50%, or even more depending on the business's reliance on key individuals.
Money Businesses (small, owner-dependent):
- Apply 25-50% discount to terminal value
- Reflects risk that business may not survive without owner
- May even skip terminal value entirely or use liquidation value
Meth Businesses (venture-backed startups):
- Apply 10-20% discount to terminal value
- Reflects higher risk but growth potential
- May vary based on stage and funding status
Empire Businesses (large private companies):
- Apply 0-5% discount to terminal value
- Minimal discount due to size and diversification
- Similar to public companies
The exact discount is highly discretionary and depends on the specific circumstances of the business.
Should I normalize private company financial statements?
Yes, private company financial statements often need normalization for owner compensation, personal expenses, and tax rates.
This ensures the financials reflect what an acquirer or investor would see.
Learn More...
Private company financial statements are often prepared for tax purposes, not for valuation or acquisition purposes.
According to Mergers & Inquisitions, many business owners take a small salary but also pay themselves a dividend that's taxed at a lower rate.
An acquirer or investor would re-classify that 'dividend' into operating expenses for the company.
Common normalization adjustments:
- Owner compensation: Normalize to market-rate compensation
- Personal expenses: Add back personal expenses disguised as business expenses (travel, cars, family on payroll)
- Tax rates: Adjust from personal income tax rates to corporate tax rates
- Non-recurring items: Remove one-time expenses or income
- Related party transactions: Adjust for transactions with related parties
These adjustments ensure the financial statements reflect the true operating performance of the business.
Without normalization, you may overstate or understate the company's profitability and cash flow generation.
The normalized financials provide a more accurate basis for DCF projections.
What discount rate should I use for private companies?
Typically 12-18% for most private companies, depending on company type and risk profile.
Money Businesses often require 15-20%, while Empire Businesses may use 10-12%.
Learn More...
Private companies require higher discount rates than public companies to account for additional risk.
The discount rate consists of: Base WACC + Illiquidity Premium + Small Company Premium.
Base WACC for private companies:
- Use industry-average WACC from public comps as starting point
- Typically 8-12% for most industries
- Adjust for company-specific risk factors
Add illiquidity premium:
- Money Businesses: +3-5%
- Meth Businesses: +2-3%
- Empire Businesses: +1-2%
Add small company premium (if applicable):
- Smaller companies: +2-4%
- Larger private companies: +0-2%
Final discount rate ranges:
- Money Businesses: 15-20%
- Meth Businesses: 12-16%
- Empire Businesses: 10-12%
According to Mergers & Inquisitions, you might add a premium for true Money Businesses, a smaller premium for Meth Businesses, and likely no premium at all for Empire Businesses.
Can I use public company betas for private companies?
No, private companies don't have betas because their shares aren't publicly traded.
Use industry-average betas and apply the build-up method with premiums instead.
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Beta measures a stock's volatility relative to the market, but private companies don't have publicly traded shares to calculate beta from.
Instead, use the build-up method to calculate cost of equity:
- Start with risk-free rate (10-year Treasury yield)
- Add equity risk premium (typically 5-6%)
- Use industry-average unlevered beta
- Re-lever beta using median capital structure of public comps
- Add illiquidity premium
- Add small company premium (if applicable)
According to Mergers & Inquisitions, in most cases, you can use the median capital structure of the public comps to re-lever Beta, and then calculate Cost of Equity the normal way.
You might estimate Beta and Cost of Equity by using dividend growth or earnings volatility relative to a broad index instead.
The key is to use industry benchmarks and adjust for private company risk factors rather than trying to calculate a beta that doesn't exist.
How do I value a Money Business?
Apply heavy discounts (25-50%), high illiquidity premiums (3-5%), and consider discounting or eliminating terminal value.
Money Businesses are small, owner-dependent companies that require the most aggressive adjustments.
Learn More...
Money Businesses are true 'small businesses' that are dependent on the owner, who tends to be highly involved in day-to-day operations.
According to Mergers & Inquisitions, you can't value a 3-person consulting firm the same way you would value McKinsey - you have to apply extreme discounts because of its dependency on those three people.
Key adjustments for Money Businesses:
- Discount rate: Add 3-5% illiquidity premium and 2-4% small company premium
- Terminal value: Apply 25-50% discount, or skip entirely
- Financial normalization: Critical - normalize owner compensation and personal expenses
- Comparable multiples: Apply 25-50% discount to public comp multiples
Terminal value options for Money Businesses:
- Option 1: Heavily discount terminal value (25-50%)
- Option 2: Use future liquidation value instead
- Option 3: Skip terminal value and assume FCF declines to zero
The business may not survive if the owner leaves, so terminal value assumptions must be very conservative.
According to Mergers & Inquisitions, if the owner gets hit by a truck, the barber shop is done - this risk must be reflected in the valuation.
What is the difference between Money, Meth, and Empire Businesses?
Money Businesses are small, owner-dependent companies (barber shop, doctor's office).
Meth Businesses are venture-backed startups seeking rapid growth (tech startups).
Empire Businesses are large private companies that resemble public companies (Ikea, Cargill).
Learn More...
According to Mergers & Inquisitions, private companies fall into three categories based on their characteristics and goals.
Money Businesses:
- Small businesses dependent on the owner
- Run for cash-flow purposes (not growth or sale)
- Owner highly involved in day-to-day operations
- Examples: barber shop, doctor's office, consulting firm
- Valuation: Highest discounts and adjustments required
Meth Businesses:
- Venture-backed startups seeking rapid growth
- Goal is to get big quickly and exit (IPO or acquisition)
- May be cash-flow negative but growing rapidly
- Examples: WhatsApp, Instagram before acquisition
- Valuation: Moderate discounts, growth-focused
Empire Businesses:
- Large private companies that resemble public companies
- Large, diverse management teams
- Profitable and could be public if desired
- Examples: Ikea, Cargill, Koch Industries
- Valuation: Minimal discounts, similar to public companies
The valuation differences are most dramatic for Money Businesses, which require extreme discounts.
Empire Businesses see the fewest differences from public company valuation.
How do I normalize owner compensation in private company DCF?
Add back excess owner compensation to cash flow and normalize to market-rate compensation.
Owner compensation often needs adjustment because owners may pay themselves above or below market rates.
Learn More...
Private company owners often pay themselves in ways that minimize taxes rather than reflect market rates.
According to Mergers & Inquisitions, many business owners take a small salary but also pay themselves a dividend that's taxed at a lower rate.
An acquirer would re-classify that 'dividend' into operating expenses for the company.
Normalization process:
- Identify total owner compensation (salary + dividends + bonuses)
- Determine market-rate compensation for similar role
- Calculate excess (or deficit) compensation
- Add back excess to cash flow (or subtract deficit)
This ensures the financial statements reflect what an acquirer would see.
The normalized compensation should reflect what it would cost to hire someone to replace the owner.
This adjustment is critical for accurate cash flow projections in the DCF model.
What personal expenses should I add back for private company DCF?
Add back personal expenses disguised as business expenses, such as personal travel, cars, and family members on payroll.
These expenses reduce reported profitability but wouldn't exist for an acquirer.
Learn More...
Private company owners often deduct personal expenses as business expenses to reduce taxable income.
According to Mergers & Inquisitions, many business owners deduct travel and entertainment as 'business expenses,' but someone looking at acquiring the company wouldn't accept that.
Common personal expenses to add back:
- Personal travel and entertainment
- Personal vehicles used for business
- Family members on payroll (if not providing real value)
- Personal insurance premiums
- Home office expenses (if excessive)
- Personal meals and entertainment
These expenses should be added back to cash flow because:
- An acquirer wouldn't incur these expenses
- They don't represent true business costs
- They artificially reduce profitability
The goal is to show the true operating performance of the business as an acquirer would see it.
This normalization is essential for accurate DCF projections and valuation.
Resources for Further Learning
- Mergers & Inquisitions: Private Company Valuation - Comprehensive guide to private company valuation
- Business Initiative: DCF Calculator - Full DCF calculator
- Business Initiative: Terminal Value Calculator - Terminal value calculator
Ready to value your private company? Use the calculator above to get instant, professional-grade DCF valuations with proper private company adjustments.
