Government Contractor Valuation
29 valuation methods · 43 industries · Results in under 10 minutes
In short
A smaller government contractor whose revenue mixes contracts and projects is valued mainly on seller's discretionary earnings; one with recurring revenue, or a larger one, on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view. Contract vehicles, recompetes and clearances shape what buyers pay.
Who this is for
Owners of federal and state services contractors in IT, engineering, logistics and professional services, preparing to sell or bring in a partner, and buyers who need contract vehicles, recompete timing and clearances read with the earnings.
How is a government contractor valued?
VA values a government services contractor with its IT and managed services approach. For a smaller contractor whose revenue is not all recurring, VA puts the most weight on seller's discretionary earnings, EBITDA plus the owner's pay, times the median multiple from small-business sales of IT services companies in its data, with a discounted cash flow, comparable companies and precedent transactions carrying the rest. A contractor that describes its revenue as recurring, and a larger one, is valued on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view of its own economics. Earnings are taken after the add-backs you confirm, and an asset floor keeps the result above what the company's own assets would recover. This tool is informational only. Output is driven by your inputs and does not constitute a formal appraisal or certified valuation.
What drives the value of a government contractor?
- Contract vehicles, and whether the company is prime or subcontractor on them
- Recompete dates, and how much revenue is up for rebid in the next few years
- Small-business set-aside status, and what happens to it after a sale
- Cleared staff and facility clearances
- Past performance ratings with each agency
- Agency concentration, and how well funded the programs are
What lowers the value of a government contractor?
- A large contract up for rebid soon
- Revenue that depends on small-business set-asides
- Cleared staff who could leave
- One agency or one program behind most of the revenue
How much is a government contractor worth? A worked example
A contractor, by discounted cash flow
Take a government services contractor with $15 M of revenue and a 10% EBITDA margin, or $1.5 M of EBITDA. Assume revenue grows 6% a year for five years, capital spending and depreciation each run at 0.5% of revenue, working capital takes 12% of each year's added revenue and tax is 25%. Cash flows are discounted at 18%, the lowest rate VA uses for a company this size, with 2.5% growth after year five. VA's discounted cash flow gives about $7.28 M before debt, or 4.9× EBITDA. If a lost recompete held growth to 2% a year, it would come to about $6.71 M. In a full report for a company this size, the value from seller's discretionary earnings and the median multiple from small-business sales carries the most weight.
Illustrative figures from VA's discounted cash flow alone, on the assumptions stated. A full report blends it with the industry's other methods, such as comparable companies and precedent transactions.
Value your government contractor in under 10 minutes
- 1.Upload your financial statements, or type the figures in.
- 2.Confirm the add-backs and the industry details the model asks for.
- 3.Get a valuation range, the methods behind it and a PDF memorandum.
Which numbers matter most?
Seller's discretionary earnings
EBITDA plus the owner's own pay and perks. VA uses the pay your statements or confirmed add-backs show; when none is stated, it estimates a working owner's pay for your industry.
Normalized EBITDA
EBITDA after the add-backs you confirm. Comparable companies and precedent transactions apply their multiples to it, and the discounted cash flow starts from it.
Recompete exposure
Revenue on contracts that will be rebid in the next few years. Buyers price the chance of losing them.
Prime share
Revenue the company earns as prime contractor rather than subcontractor. Prime work gives more control over the relationship with the agency.
Cleared staff
Employees holding security clearances. They are hard to replace and often required to perform the work.
What do you need to value a government contractor?
- Profit and loss statements and balance sheets, ideally for the last three years
- Figures for the current year to date
- A list of add-backs: the owner's pay and perks, and any one-off costs
- Loan and lease balances
- Contracts and task orders, with vehicles, values and end dates
- The recompete schedule and past performance ratings
- Staff and facility clearances
Example scenarios
A recompete ahead
The largest contract is up for rebid next year. The earnings count today, but a buyer prices the chance of losing it and may tie part of the price to the award. The worked example shows what slower growth after a lost recompete does to the value.
Set-aside revenue after a sale
Much of the revenue comes from contracts reserved for small businesses. If a larger buyer acquires the company, it may no longer qualify for new set-aside awards, which buyers weigh carefully.
Further reading
Business Valuation Methods Explained: DCF vs. Comps vs. Precedent Transactions
The five business valuation methods professionals actually use (DCF, comparable companies, precedent transactions, SDE/EBITDA multiples, and asset-based), when each wins, and how they combine into one defensible number.
Is a Business Worth 3 Times Profit? When It Is 2x, When It Is 5x, and Which Profit Counts
Is a business worth 3 times profit? Often, if the profit is SDE. When 2x or 5x applies instead, which profit counts, and what diligence does to the price.
How Much Is a Business Worth With $500,000 in Sales? The Revenue Ladder From $100K to $3 Million
Revenue does not set a price, earnings do. See what businesses at $100K, $200K, $300K, $500K, $1M, $2M and $3M in sales are worth at 10%, 20% and 30% margins.
Frequently asked questions
How is a government contractor valued?
A smaller contractor whose revenue mixes contracts and projects is valued mainly on seller's discretionary earnings times the median multiple from small-business sales of IT services companies. A contractor whose revenue is all recurring, and a larger one, is valued on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view.
Does it matter whether I describe my revenue as recurring?
Yes. VA values a contractor that describes its revenue as recurring on its recurring-revenue blend, and a smaller contractor whose revenue mixes contracts and projects mainly on seller's discretionary earnings. A multi-year contract is not always recurring revenue; describe the revenue as it is, because buyers will read the contracts.
Does set-aside status carry over in a sale?
Not always. A company that grows past the size limits, or is bought by a larger company, may lose eligibility for new set-aside awards, though existing contracts usually run on. Buyers check how much revenue depends on it.
Do security clearances raise the value?
They do not change the model's multiple, but clearances for people and facilities take a long time to obtain, so buyers pay for them and check that the people holding them will stay.
How do recompetes affect the value?
The model values the earnings you enter. Buyers look at how much revenue is up for rebid soon and the company's record of winning recompetes, and may tie part of the price to upcoming awards.
What if I pay myself less than a manager would cost?
Seller's discretionary earnings add back your own pay, so the level you pay yourself does not change that figure. A buyer who hires a manager will still look at EBITDA after a market salary, which is why the EBITDA-based checks are shown too.
Is this a certified appraisal?
No. This is an informational estimate. A bank loan, a partner buyout or an estate matter may require a certified business appraisal, which this does not replace.
Terms used on this page
- Seller's discretionary earnings (SDE)
- EBITDA plus the owner's own pay and perks. It shows what the business earns for one owner who works in it, and it is the figure most buyers of small owner-run businesses price.
- Add-backs
- Costs added back to reported earnings because a new owner would not bear them: personal expenses run through the business, one-off costs, or owner pay above what the role would cost to fill.
- Valuation multiple
- The number earnings are multiplied by to reach a value. It rises with how durable the earnings are and how easily a new owner can keep them.
- Discounted cash flow (DCF)
- A valuation that projects the cash a business will generate over the coming years and discounts it to today at a rate that reflects the risk of receiving it.
- Discount rate
- The yearly return a buyer requires for the risk of owning the business. A higher rate lowers what future cash is worth today.
- Precedent transactions
- A method that values a business at the multiples paid in past sales of similar companies.
As featured in
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Last reviewed September 26, 2026 against VA's valuation models.