Few topics generate more certainty, confidence, and outright mythology among business owners than valuation.
Business owners will tell you one of the following with great certainty:
- “There’s an industry multiple.”
- “A business like mine sold for £X.”
- “My accountant said it’s worth at least…”
- “Someone once offered me £Y.”
All comforting. All potentially misleading.
The uncomfortable truth is this: for most privately owned businesses, valuation is not a fact. It is an opinion. And often a poorly informed one.
The myth of the “industry standard” valuation multiple
There is no universal industry multiple.
Yes, advisers and commentators often refer to broad ranges — 3–5x EBITDA, 5–7x profits, revenue multiples for SaaS businesses, and so on. These can be useful starting points for a conversation. They are not answers.
Even within the same sector, valuations vary wildly depending on factors such as:
- Customer concentration
- Management depth
- Recurring revenue
- Quality of financial information
- Dependence on the owner
- Risk profile and resilience
Two businesses with identical headline profits can command radically different prices. One is a platform. The other is a job with overheads.
Why “a business like mine sold for X” is misleading
This is perhaps the most persistent legend.
Most private company transactions are not fully disclosed. Occasionally a headline value is reported, but the crucial details are almost always missing:
- Was the price paid in cash, shares, or earn-out?
- Over what time period?
- Against what earnings?
- With what assumptions about future performance?
- What warranties, indemnities, or deferred considerations applied?
Without this information, comparisons are meaningless. It is rather like hearing that someone bought a house for £1m without knowing whether it was a mansion or a studio flat — or whether it came with subsidence.
The listing-agent valuation trap for SME owners
A further source of confusion — and inflated expectations — comes from parts of the business-for-sale marketplace itself.
Some listing agents operate on a model that prioritises listings rather than completed transactions.
The commercial incentive is obvious. To win a mandate, an agent must persuade the owner to sign up — often alongside a non-refundable commitment or marketing fee. The easiest way to do that is to promise a valuation the owner already wants to believe.
This leads to a familiar pattern:
- A headline valuation is proposed at the optimistic end of the spectrum
- The number is justified with vague references to “market multiples”
- Little or no adjustment is made for risk, dependency, or saleability
- The business is listed — and then quietly sits on the shelf
From the agent’s perspective, the objective has been achieved. The listing is secured, the fee is banked, and the risk of completion rests largely with the owner.
From the owner’s perspective, the damage can be significant. Time is lost. Expectations are anchored too high. When reality eventually intrudes — usually in the form of discounted offers or onerous terms — confidence erodes and momentum disappears.
This is not to suggest that all listing agents act in bad faith. But owners should be clear-eyed about incentives. A valuation produced to win a listing is not the same thing as a valuation produced to complete a transaction.
In practice, businesses that enter the market with inflated price expectations often sell for less, not more — if they sell at all.
A realistic valuation, grounded in evidence and supported by preparation, is far more powerful than a flattering number designed to secure a signature.
Why historical offers are a poor guide to value
Owners frequently cite an approach made “a few years ago” as evidence of value.
This is dangerous thinking.
Markets change. Buyers change. Businesses change — often for the worse if preparation has been neglected. An offer that once existed is not a valuation benchmark; it is an historical curiosity.
Worse still, it can anchor expectations at a level no longer achievable, leading to frustration, delay, and in some cases a failed sale.
The only valuation that really matters to buyers
There is only one valuation that counts: the price a credible buyer is willing to pay, on terms you are willing to accept, at a specific point in time.
Until a buyer is in the room, any valuation is an educated guess — and some are more educated than others.
This does not mean valuation work is pointless. Far from it. A realistic valuation range helps owners plan, make decisions, and prioritise actions. But it must be treated as provisional, not promised.
How business value is really created — and destroyed
Valuation is not something that happens at the point of sale. It is the outcome of years of decisions — good and bad.
Broadly speaking, value is shaped by two forces:
Value drainers
These are weaknesses that increase risk or reduce confidence, such as:
- Over-reliance on the owner
- Poor quality or inconsistent management information
- Lack of documented processes
- Customer or supplier concentration
- Informal governance
Buyers price risk ruthlessly. Every unresolved weakness tends to show up as a lower price, tougher terms, or both.
Value drivers
These are features that make a business attractive and scalable:
- Predictable, repeatable revenue
- Strong second-tier management
- Clear strategy and credible growth plan
- Robust systems and controls
- Evidence of resilience through change
These do not guarantee a higher valuation — but their absence almost guarantees a lower one.
Using valuation as a management tool, not a sales pitch
The most successful exits are rarely achieved by owners who fixate on a number. They are achieved by owners who focus on building a business that buyers want to own.
Get that right, and valuation becomes a consequence rather than a debate.
Or, put more bluntly: the market does not reward hope, nostalgia, or hearsay. It rewards preparation.
And it has a brutal way of correcting myths.