Defining Business Valuations

Before exploring how brokers find the true market value of a business, it helps to understand the role of a accountant’s valuation. This process determines worth based on financial statements and accepted valuation formulas, most often adjusted book value, discounted cash flow, and fair market value. These calculations give a baseline, but they are not the whole story. They cannot capture the influence of negotiations, buyer demand, and marketing strategy all of which can significantly affect the final selling price. This is why brokers treat the accountant’s number as the starting point rather than the destination.

Why Business Valuations Vary

Valuations are rarely identical because they are influenced by perception and negotiation. A valuation is not an exact figure but rather a starting point for discussions. If both the buyer and the seller commission independent valuations, the results will usually differ.

• The seller’s valuation is often higher because it reflects optimism and potential.

• The buyer’s valuation tends to focus on risk and realistic returns.

EBITDA vs SDE

Industry, business size, and structure all play an important role in determining value. Larger businesses with higher revenues are often valued using EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples because they tend to have more formal management structures and less reliance on a single owner. Smaller businesses, particularly those where the owner’s role is central to operations, are more commonly valued using SDE (Seller’s Discretionary Earnings) since it reflects the total financial benefit an owner can derive from the business.

• Businesses with recurring revenue models often command higher valuations than those that operate on a project-by-project basis.

• A company with scalable systems is usually more attractive to buyers than one that depends heavily on the owner’s direct involvement.

• Market maturity, customer concentration, and operational efficiency also contribute to overall value.

Book Value and Liquidity in Business Valuation

Book value

is a traditional accounting measure that combines assets, liabilities, and earnings metrics such as EBITDA. It serves as a useful starting point but often fails to account for factors like growth potential, operational resilience, and intangible assets.

Limitations of book value

are significant in today’s market. Many modern businesses, especially those in service or technology sectors, derive much of their worth from intellectual property, brand reputation, or online presence. These elements can outweigh physical assets but are difficult to measure through accounting alone.

The Role of Liquidity and Market Demand

Starting with the Accountant Business Valuations

Business brokers begin with the accountant’s valuation as a reference point. This figure reflects value based on financial statements and assets, but it does not account for the realities of negotiations or how buyer interest can influence the outcome.

Building our Broker Valuation

Once the accountant’s report has set a baseline, brokers apply market knowledge, sales strategy, and buyer psychology to create a working valuation that reflects current market conditions. This broker-driven perspective considers how to present the business, where to market it, and how to create competitive interest among buyers. The aim is to position the business so that it appeals to the widest possible audience and maximizes demand, which in turn increases the likelihood of achieving a price above the accountant’s original figure.

Discovering the Real Value

The true market value often emerges during the sale process. Through effective positioning and targeted advertising, brokers aim to reach a broad pool of potential buyers. The more interest generated, the more competition there is, and that competition can significantly raise the final price.

How Demand Changes the Outcome

When multiple buyers are involved, urgency is created and the seller’s leverage increases. Offers tend to arrive more quickly, terms become more favourable, and buyers may be more willing to meet the seller’s expectations. These market dynamics, which stem from strategy and demand, are not reflected in the accountant’s original valuation and can result in a final sale price well above it.

The True Measure of Value

Ultimately, business valuations are worth what a buyer is prepared to pay. Valuation is both an analytical process and a reflection of market reality. A carefully calculated value means little if it does not resonate with active buyers or if it overlooks factors such as future potential and buyer motivation.

Strong marketing, negotiation and presentation can lead to a sale price above book value. Poor positioning can reduce the final figure. In the end, the sale price becomes the real measure of value, not the written valuation.

Free Basic Business Valuations

At Liquid Sunset, we offer free basic business valuations to help you get a clear understanding of your company’s worth. Our streamlined process provides an initial estimate based on key financial metrics, allowing you to make informed decisions about your business’s future. Whether you’re considering selling, restructuring, or simply planning ahead, our free valuation service is a great starting point.