By Rod Johnston, MBA, CMA
Every owner has a number in their head. Maybe it came from a conversation at a trade association dinner. Maybe it came from an online calculator you found at eleven at night. Maybe it’s just what you’d need to retire comfortably, worked backward into a sale price. Wherever it came from, there’s a good chance it’s wrong, and not because you did the math badly. It’s because most of what owners believe about valuation isn’t math at all. It’s myth.
I hear the same five myths over and over, from owners who are sharp about everything else in their business. Here they are, and what’s actually true instead.
“My business is worth what I’ve put into it.” Sweat equity doesn’t show up on a buyer’s spreadsheet. Twenty years of nights and weekends built the business, but a buyer isn’t paying you back for those hours. They’re paying for what the business will earn them going forward. Value is forward-looking. Your investment in it is not.
“It’s worth a multiple of revenue, like everyone in my industry.” Industry rules of thumb are a starting guess, not a valuation. Two businesses with identical revenue can be worth wildly different amounts depending on margins, customer concentration, how much depends on the owner personally, and whether revenue is trending up or down. A real valuation looks at your actual numbers, not an average.
“My equipment and property are where the value is.” Buyers of a healthy business aren’t buying a pile of assets, they’re buying cash flow, customer relationships, and a team that keeps showing up. An asset-heavy way of thinking undervalues the things that actually drive price: recurring revenue, goodwill, and a business that runs without you standing in the middle of it.
“I’ll find out what it’s worth when someone makes an offer.” Waiting for an offer to learn your number means negotiating from a position of not knowing. If you don’t have a real valuation going in, you can’t tell whether an offer is fair, generous, or low, and you’re far more likely to leave money on the table or walk away from a deal that was actually a good one.
“A high number is always good news.” An inflated valuation, especially one built on a rule of thumb or an online tool, sets an expectation the market won’t meet. Owners who hold out for that number often watch real buyers walk away, and lose years waiting for an offer that was never coming. The right number isn’t the highest one. It’s the accurate one.
If one or two of these sound like things you’ve told yourself, you’re not alone, and you’re not behind. You’re exactly where most owners are before they get a real answer instead of a guess.
Next week, I’ll walk through what an actual valuation looks at, and how to get a number you can trust instead of one you hoped for. For now, just notice which myths you’ve been carrying. That noticing is where every good decision about your business’s value actually begins.
High Mark’s expert advisors are always available for a complimentary consultation on planning for the sale of your business and what life could be after your sale. Call or e-mail us anytime to schedule a consultation. You can reach us at info@hmexit.com.