Why Accurate SBA Valuations Depend on the DCF Method

At Concluded, we specialize in SBA business valuations and work with top lenders nationwide. Our valuation reports frequently rely on the Discounted Cash Flow (DCF) method to deliver precise, data-backed conclusions. While many firms still lean on simpler Capitalization of Cash Flow (CCF) models, we take a different path to reflect the true potential of each business.

CCF vs. DCF: Why the Difference Matters

Capitalization of Cash Flow (CCF):
CCF is a traditional method that applies a fixed capitalization rate to a business’s normalized historical earnings, often tied to macro trends like U.S. GDP growth. It works best for businesses with stable, predictable earnings. But when a business is in transition, scaling up, shifting strategy, or evolving operations, CCF can miss the mark.

Discounted Cash Flow (DCF):
DCF, by contrast, looks forward. It projects future cash flows and discounts them back to today’s value using a risk-adjusted rate. This method provides:

• Growth projections tailored to the business

• Forward-looking, risk-aware insight into performance

• A clearer picture of operational changes and resale value

For businesses with growth potential or undergoing change, DCF offers a more realistic, reliable valuation.

Why Concluded Uses DCF for SBA Valuations

A Data-Driven Foundation
We combine the DCF method with proprietary analytics that pull from leading data sources:

• FRED (Federal Reserve Economic Data): Macro trends

• RMA (Risk Management Association): Industry benchmarks

• BVR (Business Valuation Resources): Private company comps

• Public Comps: Comparative financial performance data

This allows us to build cash flow forecasts that are not only grounded in evidence but also specific to each business’s actual situation.

Aligned with How Banks Underwrite Deals
Our valuations incorporate the lender’s credit memo forecasts, ensuring the analysis is aligned with the assumptions the bank is already using. That consistency reduces friction and helps deals move faster.

Reflecting Real-World Business Changes
The DCF method captures the impact of:

• New product or service launches

• Market or geographic expansion

• Large customer wins or contracts

These operational shifts are often missed in static models like CCF. While SBA valuations can’t include buyer-specific synergies, DCF still accounts for realistic, business-specific shifts that a hypothetical buyer would consider.

Our Hybrid Approach: DCF + SDE Multiple

To add rigor and reduce reliance on long-term projections, we blend the DCF method with a market-based SDE (Seller’s Discretionary Earnings) exit multiple. This hybrid approach:

• Projects near-term cash flow with precision

• Estimates a realistic resale value post-forecast

• Reduces dependence on perpetual growth assumptions

Why CCF Alone Isn’t Enough

Many firms still default to CCF. But this often means:

• Over-reliance on backward-looking data

• No visibility into near-term growth opportunities or risks

• Misleading valuation results based on flat growth assumptions

At Concluded, we go further. Our approach provides nuanced, defensible, and lender-aligned valuations that better reflect the realities of today’s businesses.

The Benefits of DCF for SBA Lenders

• Greater Accuracy: Each valuation is tailored to the business's actual outlook.

• Lower Risk: Future performance is forecasted with realistic growth and discount rates.

• Stronger Decisions: Lenders get reports that match how they think about deals—grounded in data, aligned with underwriting, and built for clarity.

Concluded valuations deliver more than a number. They deliver confidence.