Enterprise value is not what you take home.

When a buyer says a business is worth eight million dollars, they almost always mean enterprise value: the value of the operating business itself, independent of how it happens to be financed. When an owner hears eight million dollars, they usually hear a wire transfer. The distance between those two numbers is the equity bridge, and it is negotiated line by line.

The bridge, in order

Start with enterprise value. Subtract funded debt: term loans, lines of credit, equipment financing, and capitalized leases. Subtract the items buyers treat as debt-like: unpaid taxes, deferred compensation, customer deposits the business has already spent, and in many software deals, deferred revenue. Add back cash beyond what the business needs to operate. What remains is equity value, the number the sellers actually divide.

Then working capital moves it again

Most deals are done on a cash-free, debt-free basis with a working capital peg: the business must be delivered with a normal level of receivables, inventory, and payables. If working capital at close is below the peg, the price drops dollar for dollar. The peg methodology, usually a trailing average, is worth as much attention as the headline multiple, because a poorly set peg quietly moves six or seven figures.

And then the rest

Transaction fees, taxes on the gain (which depend heavily on asset versus equity structure), escrows held back for indemnities, and any seller note or rollover equity all stand between equity value and the wire. None of this is sharp practice; it is how transactions work. Sellers who model the full bridge before going to market negotiate the right things. Sellers who discover it in diligence negotiate from surprise.

The practical takeaway

Whenever you hear a valuation number, ask two questions: is that enterprise or equity value, and on what working capital assumption? Those two questions eliminate most of the expensive misunderstandings in lower-middle-market deals.

See your own bridge in the Value Range Estimator