How the AI valuation works
The valuation tool turns twelve answers into a range. It is a benchmark, not an appraisal, and it is only as good as the numbers put into it. Here is exactly what moves the multiple and what the range does not tell you.
What the tool actually calculates
Start with EBITDA, or seller discretionary earnings on smaller deals. Apply a base multiple drawn from closed transactions in the same sector and size band. Then adjust that multiple up or down for the characteristics buyers reliably pay more or less for. The result is a fair value, with a range around it.
Revenue is used as a sanity check rather than the driver. Two businesses with identical revenue and very different margins are not worth the same, and a revenue multiple hides that.
The five factors that move the multiple
Why you get a range, not a number
Nobody buys at a point estimate. The range reflects the spread of what comparable businesses actually closed at, and the deal terms move you within it: cash at close versus an earnout, how much transition support is included, whether real estate transfers, and how motivated each side is.
- The conservative end is roughly where a cautious buyer with financing constraints lands.
- Fair value is the midpoint of comparable closed transactions with similar characteristics.
- The aggressive end assumes a strategic buyer or competitive process.
What the confidence score means
High confidence means the sector has enough recent comparable transactions and the inputs are internally consistent. Medium usually means thin comparables, an unusual size band, or inputs that pull in opposite directions, such as strong growth alongside heavy customer concentration. It is a statement about the data, not about the business.
What the tool cannot see
- Whether the reported numbers are accurate. At valuation stage nothing is verified.
- Customer contracts that are about to renew, or about to end.
- Key-person risk that is not visible in an owner-hours figure.
- Deferred maintenance, pending litigation, or a lease that will not transfer.
The valuation tells you whether an asking price is inside a defensible range. It does not tell you whether the business is a good business. That is what the deal room and your accountant are for.
Using it in a negotiation
The useful move is not quoting the range at a seller. It is asking which factor they think justifies their end of it, then testing that factor in diligence. If a seller prices at the aggressive end on the strength of recurring revenue, the renewal history is the first thing to request.
Supply the real base multiples by sector and size band, the comparable transaction count behind each, and the confidence thresholds, so this article can state them rather than describe them.