One of the questions I’ve been asked more than any other over the years is, “What do you think my business is worth?”
It’s usually followed by a conversation about turnover and how great their sales opportunity pipeline is (Next year will be our best year ever).
They explain how the business has grown. Sales have increased. New customers have come on board and, from the owner’s perspective, everything feels as though it’s moving in the right direction. They’ve worked incredibly hard to get there, and quite rightly they’re proud of what they’ve built.
The difficulty is that buyers don’t always see the business through the same lens.
That’s where expectations can begin to drift apart.
I’ve sat with owners who genuinely believed their business should command a premium valuation because revenue had doubled over the previous five years. On paper, the growth looked impressive. Then when we start looking beneath the surface, a different picture emerges. Margins have steadily reduced, the owner was still making every significant decision and a handful of customers represented a large proportion of the company’s income.
None of those issues made it a bad business.
They simply made it a riskier one from my and any buyer’s lens.
That’s an important distinction because business value has never been determined by size alone. It’s determined by confidence.
When an experienced buyer looks at a business, they’re asking themselves one simple question.
“Can this business continue to perform, and improve, after the current owner has stepped away?”
Everything else supports the answer.
I’ve always believed businesses are reflections of their owners. Spend an hour with a founder and you’ll often understand why the business performs the way it does. If they’re commercially curious, open to challenge and constantly looking ahead, those qualities usually filter through the organisation. If they’ve become comfortable, resistant to change or convinced that yesterday’s success guarantees tomorrow’s performance, the business often reflects that as well.
The market notices long before the owner does.
One phrase I’ve used for many years is the velvet rut. It’s where a business appears to be doing perfectly well. Customers are still buying, people are busy and the accounts look healthy enough. Yet very little is changing. Processes remain the same, reporting hasn’t evolved, competitors are improving and the leadership team has stopped asking difficult questions.
Nothing feels urgent. Until it does.
By the time declining margins or slowing growth appear in the financial statements, the business has often been losing momentum for much longer. That’s why I encourage owners to spend less time comparing themselves with competitors and more time understanding how their own business is evolving.
Is it genuinely becoming stronger, or simply becoming familiar with what has worked in the past? The answer usually becomes obvious when you look at the management team.
Businesses that command the strongest valuations almost always have capable people making decisions throughout the organisation. Responsibility is shared. Knowledge isn’t locked inside one person’s head. Customers have confidence in the business rather than one individual.
Ironically, many founders see their constant involvement as proof of commitment. Buyers see this as concentration of risk.
The same principle applies to financial performance.
Turnover is easy to celebrate because it’s visible. It creates headlines and provides a simple comparison with competitors. Profitability requires a more thoughtful conversation. Strong margins demonstrate pricing discipline, operational efficiency and the ability to create sustainable returns.
That’s what buyers are really investing in. Future earnings, Not historic revenue.
I’ve also found that owners sometimes underestimate the importance of understanding their own marketplace. Markets don’t stand still. Customer expectations change, technology develops and competitors continue looking for ways to improve. Businesses that stay close to those changes tend to remain relevant. Those that rely on what worked five years ago gradually lose their competitive edge without always recognising it.
You don’t need to reinvent your business every year.
You do need to keep questioning whether it still deserves its place in the market.
Another misconception is that business value only matters when you’re thinking about selling.
I couldn’t disagree more.
A valuable business is usually a better business to own. It has stronger leadership, clearer reporting, healthier cash flow and more options. It attracts better people, gives owners greater flexibility and is more resilient when markets become uncertain.
Those benefits exist whether a sale ever happens or not.
In my experience, the owners who achieve the best outcomes aren’t constantly thinking about an exit.
They’re thinking about building a business that creates choices.
If an opportunity to sell comes along, they’re ready. If they decide to continue growing the business for another decade, they’re equally well placed. That’s a much healthier way to think about value.
Markets will continue to change, as they always have. Interest rates will rise and fall, confidence will fluctuate and buyers will adjust their priorities. Those things are outside any owner’s control. The quality of the business they’re building isn’t.
Every decision to strengthen a management team, improve reporting, protect profitability or better understand the market contributes to long-term value.
None of those decisions make headlines. Taken together, they make all the difference. That’s why I’ve never believed business value is something created in the final stages of a negotiation.
It’s built over many years, through hundreds of sensible decisions that most people outside the business will never see. Eventually, though, buyers do. And when they do, the conversation about value becomes a very different one.
I’d be interested to hear your perspective.
Looking back at your own business, which decision do you think has contributed most to its long-term value?