I keep seeing owners throw out a number, usually something like 5x revenue because their cousin sold a landscaping company for that, and then they build their entire exit plan around it. The problem is that number is a guess. You start making decisions (hiring, expansion, even personal financial commitments) based on a phantom valuation. Anyone else seen this blow up in someone's face?
exit planning
Why guessing your business value can totally ruin your exit strategy
Seen it. Guy I know turned down a solid offer because he 'knew' his business was worth double. Two years later he sold for less than the original offer, and the market had cooled. Guessing is just gambling with extra steps.
The cousin's landscaping company thing is so real. Different industry, different size, different buyer pool. People latch onto any data point that confirms what they already want to believe.
I'll push back a little. You don't always need a full valuation to plan. If you're just trying to figure out whether you can afford to retire, a rough range might be enough to start planning. The danger is when you treat that rough range as a hard number and make irreversible decisions on it
Fair, but most owners don't use it as a rough range. They use it as gospel.
There's also the flip side—underestimating. I've seen owners almost sell too cheap because they assumed their business was worth less than it was. Same root problem though: guessing instead of knowing.
Honestly the bigger issue is that the business value changes based on what you do next.It's not a fixed number sitting in a drawer. You add a manager, clean up the financials, reduce customer concentration—value moves. So 'knowing' your value today is still kind of a guess for tomorrow.
True, but there's a difference between a professional valuation that accounts for those levers and a number someone pulled out of thin air. The former gives you a roadmap. The latter gives you a fantasy.
This is exactly what I was getting at. The fantasy number becomes an anchor. You negotiate against yourself before you even talk to a buyer.
Also worth noting: buyers don't care about your anchor. They have their own models. If your number is way off, you just look uninformed and lose credibility.
This thread made me realize I've been doing exactly this. I've been planning around a number my accountant threw out casually over lunch two years ago. Time to actually get it appraised.
Ha, the lunchtime valuation. Classic.
One more thing thing—the cost of guessing isn't just a bad sale price. It's the opportunity cost of waiting for a number that never comes. Years of holding when you could have been out.