Valuation is as much art as science. Whether you are preparing for a full exit or a minority stake sale, understanding how buyers assess value is critical to achieving the best possible outcome.
The Three Pillars of Valuation
Professional buyers typically employ three core methodologies. Discounted Cash Flow (DCF) analysis projects future cash flows and discounts them to present value, offering a fundamental assessment of intrinsic worth. Comparable company analysis benchmarks your business against publicly traded peers, while precedent transaction analysis examines what similar businesses have sold for in recent deals.
Beyond the Numbers
While financial metrics provide the foundation, qualitative factors can significantly move the needle on deal pricing. The strength of the management team, customer concentration risk, competitive positioning, intellectual property, and growth runway all influence how buyers perceive value. A business growing at 20% with a diversified customer base will command a very different multiple than one growing at the same rate but dependent on a handful of key accounts.
The Preparation Premium
Businesses that invest time in preparation—clean financial records, documented processes, and a clear growth narrative—consistently achieve better valuations. This "preparation premium" reflects reduced buyer risk and increased confidence in the sustainability of future performance. Starting this process 12-18 months before a planned transaction is ideal.
Common Valuation Pitfalls
Founders frequently overvalue based on emotional attachment or revenue multiples alone, while underestimating the impact of normalisation adjustments, working capital requirements, and earn-out structures. Understanding these nuances before entering negotiations is essential to avoiding value erosion during the deal process.
A well-prepared approach to valuation does more than set expectations—it creates a framework for productive negotiations and ultimately drives better outcomes for all parties involved.