20 Golden Nuggets - Valuation - Perception vs Reality

3. Valuation - Perception v Reality

Many SME owners overestimate the value of their business. After all, it’s your life's work, and the emotional attachment can cloud judgment. However, potential buyers don’t share that same emotional connection—they value the business based on cold, hard numbers and risk factors.

The first step is understanding how businesses are valued in your industry. This typically involves a multiple of EBIT (Earnings Before Interest and Taxes), but that’s not the whole story. The buyer will also consider future earnings potential, operational efficiency, and how much they’ll need to invest post-purchase.

If you haven’t had your business formally valued, it’s time to get a professional valuation. This gives you an objective, realistic picture of what your business is worth today. While the figure might be lower than expected, this gives you the opportunity to take steps to increase value before selling.

It’s also important to recognize the difference between what you want and what the market will bear. You may have a number in mind, but unless your business justifies that figure, buyers won’t bite.

Golden Nugget - Don’t let emotions drive your valuation. Get a professional assessment and focus on making your business more attractive to buyers by improving profitability and reducing risk.