Net Worth for Entrepreneurs: 11 Steps to Value Your Business in Personal Wealth

If most of your wealth lives in your company, your personal balance sheet is only as accurate as your business valuation. This guide gives you a practical, defensible way to fold a private-business value into your personal net worth without guesswork. Brief note: this is education, not individualized financial, tax, or legal advice—partner with qualified professionals for decisions that affect your money and compliance.

Quick answer: your net worth equals total assets minus total liabilities. For entrepreneurs, “assets” include the equity value of your business (what’s left for owners after debts), not the business’s enterprise value. To get there, you value the company, convert enterprise value to equity, consider control and marketability, and then place that equity on your personal statement.

At a glance, the 11 steps: define the standard of value and date; separate business from personal; normalize financials; pick the right valuation approach; apply market multiples; run DCF and choose a discount rate; bridge enterprise to equity; apply discounts/premiums when applicable; reflect taxes and structure; price liquidity and concentration; document, update, and stress test.

1. Clarify your “standard of value,” “interest,” and valuation date

Start by locking in three framing choices that determine every downstream number: your standard of value (e.g., fair market value), the interest being valued (e.g., 100% control or a minority stake), and the valuation date. Without these, every spreadsheet will wander. In most wealth-planning contexts, owners use fair market value (FMV)—the price between a willing buyer and seller, with neither under compulsion and both informed. This aligns with common professional and regulatory frameworks and keeps your estimate defensible. Also specify whether the business is valued as a going concern or on a liquidation basis; for ongoing firms, assume going concern unless facts suggest otherwise. Round this out by writing a scope memo: purpose (personal net worth), intended users (you, spouse, advisors), and governing standards you aim to be consistent with (e.g., IVS/ASC 820 concepts), even if you’re not issuing a formal appraisal. This reduces disputes later.

Why it matters

• FMV vs. investment value: FMV assumes a generic market participant; investment value reflects your unique synergies and is usually higher. Choose explicitly, or your number will be challenged.
• Control vs. minority: A controlling interest can command a control premium; a minority interest may require a discount for lack of control (DLOC).
• Valuation date: Wealth, taxes, and risk can swing with timing; lock the date to keep inputs consistent.

Mini-checklist

• Define standard of value (FMV is common).
• Identify interest (percentage, voting rights, restrictions).
• State premise (going concern vs. liquidation).
• Document valuation date and purpose.
• List intended users and any assumptions.

Close with clarity: by codifying these anchors first, you prevent methodological drift and keep your net worth calculation audit-ready.

2. Separate business economics from owner lifestyle (and stop the bleed)

Before you touch multiples or models, clean the books so they reflect business economics—not your lifestyle. That means recasting or normalizing financials: unwind one-time items, non-operating income/expenses, and owner-specific perks. For smaller firms, analysts often pivot to Seller’s Discretionary Earnings (SDE)—profit available to a full-time owner-operator after normalizing—and for larger firms, to EBITDA, a proxy for core operating performance. The goal is comparability to market peers and to valuation studies.

How to do it

• Normalize revenue: remove unusual spikes/dips not expected to repeat.
• Adjust COGS/OpEx: strip one-offs (e.g., lawsuit costs) and owner-only perks (personal travel, family payroll).
• Set a market wage: if you underpay yourself, add back a fair salary; if you overpay, adjust down.
• Reclassify non-operating items: excess cash, portfolio income, unrelated real estate.
• Choose SDE or EBITDA: match to firm size/industry and what buyers use.

Numbers & guardrails

• SDE example: Reported net profit: $420,000. Addbacks: owner salary $180,000, health insurance $24,000, one-time legal $30,000, personal auto $12,000 → SDE = $666,000.
• EBITDA example: Net income $350,000 + interest $40,000 + taxes $0 (pass-through for model) + depreciation $60,000 + amortization $25,000 → EBITDA = $475,000.
  SDE is common in main street/owner-operator deals; EBITDA dominates mid-market. Use the measure the market uses for your size.

Synthesis: Normalization converts a messy profit-and-loss into a clean economic signal, which is the only foundation worth putting on your personal balance sheet.

3. Choose valuation approaches that fit your facts (market, income, asset)

There are three families of methods: market, income, and asset-based. Most operating firms rely on market and income; asset-based methods matter when the asset pool drives value (e.g., holding companies) or when earnings are unreliable. Pick the one(s) that a reasonable buyer for your type of company would expect—and triangulate for sanity.

Compact table — when to use what

Tools/Examples

• Market: Apply EV/EBITDA or price/SDE against guideline public comps (scaled/adjusted) or private transaction data.
• Income: Build a Discounted Cash Flow (DCF) with a defensible discount rate (WACC) and terminal value. CFA Institute
• Asset-based: Start with net asset value, then mark key assets to fair value; add intangibles only if supportable.

Wrap-up: Don’t force a one-size method. Let your business model, data quality, and buyer expectations dictate the weighting.

4. Apply market multiples the right way (and don’t cherry-pick)

Market methods are powerful—fast, intuitive, and aligned with how many buyers think. But they’re easy to misuse. Select truly comparable companies or deals, adjust for scale and risk, and reconcile multiple indicators instead of seizing the rosiest one. For owner-operator businesses, SDE multiples are common; for larger firms, EV/EBITDA or EV/Sales prevail.

How to do it

• Pick the right base: SDE for main street; EBITDA for mid-market; revenue only if profits are still emerging.
• Quality screen comps: same industry, margin structure, growth, capital intensity.
• Adjust for size and growth: smaller, riskier firms deserve lower multiples than large, diversified peers.
• Use ranges, not single points: apply a low/median/high multiple with rationale.
• Cross-check: if EV/EBITDA suggests an outlier versus SDE/revenue indications, re-check inputs.

Mini case

• Your normalized EBITDA = $475,000. Peer EV/EBITDA median = 5.0×; size/risk suggests a modest haircut to 4.5× → EV = $2,137,500.
• A revenue view: $3.2 million sales × 0.7× EV/Sales (asset-light, sticky revenue) → EV = $2,240,000.
• Reconcile: weight 60% to EBITDA, 40% to Sales → EV ≈ $2,180,500.

Bottom line: let the data and business reality steer the multiple—not wishful thinking.

5. Build a DCF you can defend (cash flows, WACC, terminal value)

A Discounted Cash Flow (DCF) converts expected future cash flows into today’s value. It’s sensitive to assumptions, but when built transparently, it’s the most instructive lens: you see exactly which levers drive value. Estimate free cash flow to the firm (or to equity), pick a discount rate that reflects business risk (commonly WACC), and set a realistic terminal value via exit multiple or long-run growth.

How to do it

• Cash flows: start from EBITDA; subtract normalized capex; add/subtract working capital changes; account for taxes consistent with structure.
• Discount rate: WACC blends required returns from debt and equity (after-tax for debt). For equity, models like CAPM estimate required return: E(R) = Rf + β × (Rm − Rf).
• Terminal value: use a conservative perpetual growth or an exit multiple that matches the earlier market analysis.

Numbers & guardrails

• Years 1–5 FCFF: $350k, $380k, $410k, $440k, $470k.
• WACC: 12% (based on your small size, cyclicality, and leverage).
• Terminal: exit EV/EBITDA 4.8× on Year-5 EBITDA $520k → terminal EV $2.50m.
• Present value of interim cash flows: $1.49m; PV of terminal: $1.42m → EV ≈ $2.91m.

Close the loop by reconciling DCF to market indications—two independent paths pointing in the same direction are far more credible than either alone. CFA Institute

6. Bridge enterprise value to equity (and place it on your balance sheet)

Buyers often talk in enterprise value (EV); your personal net worth needs equity value. Bridge them: Equity Value = EV − Net Debt ± Non-operating Adjustments. Net debt equals interest-bearing debt minus excess cash. Add back assets not needed for operations (e.g., an investment portfolio) and subtract liabilities or off–balance sheet obligations tied to owners (e.g., unfunded commitments) that a buyer would account for.

Numeric bridge

• EV from reconciliation: $2.50m (rounded).
• Cash: $200k; Debt: $900k → Net Debt = $700k.
• Non-operating assets: $80k portfolio; Non-operating liabilities: $0.
• Equity Value = $2.50m − $0.70m + $0.08m = $1.88m.

Why this matters

• EV vs equity is not semantics; EV ignores capital structure, while your net worth cares only about what’s left for owners. Use EV for comparability and DCF math, but record equity on your personal statement.

Synthesis: after this bridge, you have a defendable equity value—the exact figure that belongs in your net worth.

7. Apply discounts and premiums only when justified (control, marketability)

In wealth-planning contexts, two valuation adjustments cause the most debate: DLOC (lack of control) and DLOM (lack of marketability). Apply them only when your interest and facts truly warrant it, and support with methodology, not lore. For a minority, non-marketable stake, both may apply; for a 100% controlling interest, a control premium may instead be justified, and DLOM may be lower.

How to think about it

• DLOC: minority holders cannot direct strategy, dividends, or liquidity; a discount may reflect that.
• DLOM: private shares are harder and slower to sell, so buyers demand price concessions.
• Support: use recognized frameworks—restricted stock, pre-IPO, option models—and document inputs like holding period and volatility.

Mini case

• Pre-discount Equity Value = $1.88m.
• Facts: 30% non-voting interest; shareholder agreement restricts transfers; expected holding period 5–7 years; no put rights.
• Reasoned parameters suggest DLOC = 10–15% and DLOM = 20–35% (ranges vary by method and facts; document your rationale).
• Apply 12% DLOC → $1.654m; then 25% DLOM → $1.240m.
• Your 30% stake would be $372k for personal net worth in this fact pattern.

Tie-back: adjustments are not recipes—they’re reasoned, evidence-based estimates. Overstating discounts may depress borrowing capacity; understating them inflates your net worth. Balance is credibility.

8. Reflect taxes and entity structure (don’t mix pre-tax apples with after-tax oranges)

Valuation is typically pre-tax, but net worth is an after-tax reality. For pass-through entities (LLC/LP/S corp) or C corps, understand how taxes affect cash flows, discount rates, and ultimately your after-tax proceeds. Also consider built-in gains, state taxes, and any contingent tax exposures. If you plan to sell, run an “after-tax proceeds” scenario to reconcile the book equity value to the likely cash you’d actually pocket.

How to do it

• Align DCF taxes with entity structure (e.g., pass-through tax assumptions vs. corporate taxes).
• Estimate owner-level taxes on distributions and a sale.
• Model basis and capital gain vs. ordinary income elements.
• Include state or local layers where relevant; some jurisdictions diverge materially.

Mini case

• Equity value: $1.88m. Hypothetical sale with 5% transaction costs, debt payoff $0.70m → gross to equity: $1.18m.
• Assume blended tax on gains and recapture leads to 22% effective rate (illustrative): net after tax ≈ $920k.
• For net worth planning, you might carry $1.88m as fair value and separately track sale-proceeds-after-tax in a scenario worksheet.

Note: Tax-affecting pass-through earnings is a technical, debated area; stay consistent and disclose your approach. The IRS provides job aids for specific entity issues; consult a valuation professional for high-stakes uses. IRS

9. Price liquidity and concentration on your personal balance sheet

Even after DLOM at the company level, your personal portfolio may be dangerously concentrated. If 70–90% of your net worth is your business, your family’s financial resilience leans on a single cash-flow engine. Acknowledge that in planning: set liquidity targets, insurance, and an off-ramp plan.

Why it matters

• Illiquidity and concentration raise your required return and sequence risk. Academic and practitioner work shows material liquidity effects on value; model a cushion and contingency budget proportional to your exposure. Stern School of Business

Numbers & guardrails

• Liquidity runway: hold 6–12 months of personal burn in cash or equivalents while business volatility is high.
• Diversification step-downs: target bringing business exposure below 50% of net worth over time via dividends, secondary sales, or asset shifts.
• Insurance: key person, disability, and umbrella liability can be cost-effective risk transfers.

Mini-checklist

• Set a target liquidity buffer.
• Commit to a diversification path with dates/metrics.
• Add contingency coverage (insurance, credit lines).
• Revisit after major business milestones.

Synthesis: your valuation feeds your plan; your plan should blunt the single-asset risk that valuation makes visible.

10. Document your work to professional standards (even if it’s “for you”)

Well-documented assumptions beat hand-wavy numbers—especially when lenders, partners, or examiners ask questions. Structure your memo like a condensed professional appraisal: define the assignment, summarize methods and reconciliations, include a valuation bridge, and attach data exhibits. Align with commonly referenced standards where feasible.

Practical outline

• Engagement summary: purpose, standard of value, valuation date, interest.
• Company overview: business model, customers, key risks.
• Financial normalization: SDE/EBITDA schedules and supporting adjustments.
• Approaches & results: market, income, (asset if used), with ranges and weights.
• EV→Equity bridge: cash, debt, non-operating items.
• Adjustments: DLOC/DLOM rationale and method.
• Conclusions & sensitivity: headline number plus what-if ranges.

Why it matters
Standards like ASC 820, IVS, AICPA VS Section 100, and RICS Red Book emphasize clarity, consistency, and disclosure—virtues that make your estimate more credible even outside formal reporting.

Wrap: A tidy file turns a “number” into a defendable position you can share with advisors and lenders without redoing the work.

11. Update and stress test regularly (because value moves)

Your business value isn’t static, and neither is your net worth. Create a rhythm to refresh inputs and stress test the number. Re-run your market multiples and DCF when there’s a material change in revenue mix, margins, capital needs, or risk profile. Keep a simple playbook for shocks: lost customer, margin compression, or credit tightening.

How to do it

• Cadence: light refresh each quarter; deeper recalculation when any KPI shifts more than, say, 10–15%.
• Scenarios: Base, Downside (−20% EBITDA), Upside (+15% EBITDA).
• Triggers: new debt, major contract signed/lost, leadership changes, regulatory shifts.
• External checks: quick read against current market multiples and discount-rate norms.

Mini case

• Base equity: $1.88m.
• Downside: EBITDA −20% → EV (market) falls ~0.9× multiple equivalent; equity ≈ $1.45m.
• Upside: EBITDA +15% with modest multiple expansion → equity ≈ $2.10m.
• Decide which number you’ll carry for household planning and what you’ll treat as “cushion.”

Synthesis: value is a moving target; your process—not any single estimate—is the real asset.

FAQs

How do I include my business in my personal net worth if I’m not selling?
Use a fair market value estimate for your ownership equity, not enterprise value. Normalize earnings, apply a market and/or income method, convert EV to equity by subtracting net debt, and consider control/marketability based on your specific interest. Document assumptions so you can revisit them without starting over.

Is SDE or EBITDA better for my valuation?
Match the metric to market practice. SDE is common for owner-operated firms where the owner’s time and perks blur business economics; EBITDA is standard for larger firms and institutional buyers. Consistency with market conventions makes your multiple choices and comps more defensible.

What’s the difference between enterprise value and equity value?
Enterprise value reflects the value of the operating business regardless of capital structure. Equity value is what belongs to owners after subtracting net debt and other adjustments. Use equity value on your net worth; use EV for comps and DCF.

Do I need to apply DLOM or DLOC to a 100% interest?
Not necessarily. A controlling, marketable interest may warrant no DLOC and a lower DLOM than a minority stake. Apply adjustments only when facts support them, and reference recognized methods for estimating size and rationale.

How do professional standards affect a personal valuation?
Even if your estimate is “for internal use,” aligning with concepts from IVS, ASC 820, AICPA VS Section 100, or RICS Red Book improves clarity and credibility when sharing with lenders, planners, or tax advisors.

Should I carry fair value or after-tax sale proceeds in my net worth?
For a going concern, carry fair market value of equity as your asset and separately track a sale-proceeds-after-tax scenario so you understand liquidity if you exit. The two numbers answer different questions—what it’s worth vs. what you’d keep.

What discount rate should I use in DCF?
Use WACC for firm cash flows, blending after-tax cost of debt with required equity return (often estimated via CAPM). Be explicit about inputs and cross-check against what similar-risk companies imply.

How often should I update my business value?
Refresh when key drivers move materially (e.g., revenue, margin, customer concentration, leverage). A light quarterly check plus an annual deep dive works well, with ad-hoc updates for major events.

Where do regulations like Revenue Ruling 59-60 fit?
In tax contexts, that ruling outlines factors commonly considered in valuing closely held businesses. While your personal net worth isn’t a tax filing, using those factors as a checklist helps build a defensible, market-participant view.

Is there a quick way to sanity-check my number?
Yes: triangulate. Compare a market multiple result to a DCF and, if applicable, to an asset-based backstop. If all three cluster within a reasonable range after your EV→equity bridge, you’re likely in the right neighborhood.

Conclusion

When your wealth rides on your company, precision matters. The right way to place your business on your personal balance sheet is to normalize earnings, choose the right methods, triangulate market and income results, bridge EV to equity, and apply adjustments only when justified. Treat taxes, liquidity, and concentration as planning realities, not afterthoughts, and document the path so you can refresh it without reinventing the wheel. Do this well and your net worth becomes a strategic tool: you’ll know how value is created, what could dent it, and which levers move it most. Ready to convert uncertainty into clarity? Start your normalization workbook today and pencil in your first reconciliation across market and DCF—then carry the equity to your net worth with confidence.

Call to action: Block 90 minutes to normalize last year’s P&L, apply one market multiple and a simple DCF, and record the EV→equity bridge—your future self will thank you.

References

1. International Valuation Standards (Standards page) — International Valuation Standards Council (IVSC). Publication page (ongoing). IVSC
2. 4.48.4 Business Valuation Guidelines — Internal Revenue Service (IRM 4.48.4). Sep 22, 2020. IRS
3. Discount for Lack of Marketability: Job Aid for IRS Valuation Professionals — Internal Revenue Service (LB&I). Sep 25, 2009. IRS
4. RICS Valuation – Global Standards (Red Book) — Effective edition — Royal Institution of Chartered Surveyors. 2022. RICS
5. ASC 820: Fair Value Measurement — Key Concepts — PwC Viewpoint. Mar 31, 2022. Viewpoint
6. VS Section 100 — Statement on Standards for Valuation Services — AICPA & CIMA. (Resource page). AICPA & CIMA
7. Market-Based Valuation: Price and Enterprise Value Multiples — CFA Institute Refresher Readings. 2025. CFA Institute
8. Portfolio Risk and Return (CAPM formula) — CFA Institute Refresher Readings. 2025. CFA Institute
9. WACC: Definition and Formula — Corporate Finance Institute. (Guide). Corporate Finance Institute
10. Seller’s Discretionary Earnings — Glossary — International Business Brokers Association (IBBA). (Glossary page). ibba.org
11. The Cost of Illiquidity (Selected Methods & Illustration) — Aswath Damodaran, NYU. (Working paper). people.stern.nyu.edu