Is Your Business Really Worth What You Think It Is?
Many business owners have a number in mind when it comes to what their company is worth. But in practice, that number is often based on informal assumptions rather than objective analysis and in some cases, the actual value can be far lower (or higher) than expected.
Understanding what truly drives business value and how to influence it over time isn’t just important for exit planning. It’s a strategic lens for managing risk, improving resilience, and preserving long-term financial flexibility.
What Really Drives Business Value
Business value isn’t determined by what you’ve invested, how hard you’ve worked, or what a similar company sold for. It’s based on what a qualified, informed buyer would pay today driven by how your business performs, grows, and transfers.
While every business is different, value generally depends on three fundamentals:
- Earnings – Is the business profitable and stable?
- Growth potential – Can those profits scale sustainably?
- Risk – How confident is a buyer that the performance will continue without disruption?
These factors shape what’s known as your valuation multiple, the multiplier applied to earnings to determine value. Two businesses with identical profits can command very different prices depending on their operational maturity, […]
