The Myth:Pre-COVID numbers are the true benchmark for valuation. The Reality:Markets have shifted permanently post-2020. Buyers, lenders, and valuators prioritize current, sustainable performance over historical pre-pandemic results. Why It Matters:Using outdated financials risks overvaluing businesses that haven’t recovered or adapted. Practical Tip:Focus your valuation on proven recovery trends — not just historical highs.
Author: Certified Business Appraiser
🧊 Even a 100% Owner Can’t Sell Overnight
Discount for Lack of Marketability (DLOM) isn’t just for minority interests. Even if you own the whole business, you can’t cash out tomorrow. That illiquidity matters—and it’s why DLOMs are justified even for controlling stakes. Takeaway for SBA lenders: The DLOM reflects real economic friction. It’s not about control—it’s about marketability. Check out our article … Continue reading 🧊 Even a 100% Owner Can’t Sell Overnight
đźš© Red Flag Story: Equipment Obsolescence
đźšś A manufacturer had solid cash flow—but we discovered most equipment was outdated, barely functioning, and not included in CapEx forecasts. Without reinvestment, operations would stall. With proper CapEx? Cash flow dropped by $110K/year. The fix:âś… Calculated Maintenance CapEx and Normalized Free Cash Flowâś… Lender adjusted loan terms Always ask: Will this business stay functional … Continue reading đźš© Red Flag Story: Equipment Obsolescence
📚 Valuation Myth: CapEx Doesn’t Matter in Valuation
The Myth:Maintenance capital expenditures don’t affect value. The Reality:Ignoring CapEx inflates free cash flow and overstates value. Every business has recurring investment needs — whether it's equipment, vehicles, or tech infrastructure. Why It Matters:Failing to account for CapEx misleads buyers and lenders about long-term sustainability. Practical Tip:Always subtract normalized CapEx from cash flow.
📉 Low Risk? Low Return. High Risk? Better Be Worth It.
Every valuation is a risk-adjusted exercise. The greater the risk, the higher the return an investor will require—and the lower the value today. This principle is baked into every SBA 7(a) valuation through the discount or cap rate. Takeaway: Risk is the price of opportunity. It should never be ignored or “smoothed out” in small … Continue reading 📉 Low Risk? Low Return. High Risk? Better Be Worth It.
🧠FMV ≠10x EBITDA
📢 Just because a company sold for 10x EBITDA doesn’t mean your deal should be valued that way. Market comps are helpful—but only when adjusted for: Size Industry Risk Terms Liquidity SBA lenders need fair market value—not headline multiples.
đź“š Valuation Myth: Book Value Sets a Minimum Value
The Myth:A business is always worth at least its book value. The Reality:If the business isn’t profitable, or if its assets are illiquid or obsolete, the true value may fall below book. Buyers pay for income potential — not just recorded assets. Why It Matters:Using book value as a floor can lead to overvaluation — … Continue reading đź“š Valuation Myth: Book Value Sets a Minimum Value
SBA 7(a) Business Valuation Multiples Cheat Sheet
This cheat sheet provides estimated price-to-revenue (P/Revenue) and price-to-EBITDA (P/EBITDA) multiples for small businesses across various industries, based on heuristic and empirical data from transactional and valuation analyses and cross-referenced with market research. These ranges are tailored for SBA 7(a) loan valuations, focusing on businesses with revenues typically under $5M. This cheat sheet is designed … Continue reading SBA 7(a) Business Valuation Multiples Cheat Sheet
🏦 Why Global Cash Flow Can’t Justify a Higher Valuation
Global cash flow is great for underwriting—but it doesn’t belong in a valuation model. Valuation relies on free cash flow from the subject business—not combined with personal income, spouse wages, or real estate. Why? Because buyers only buy the business, not the owner’s other income sources. Takeaway for lenders: If you use global cash flow … Continue reading 🏦 Why Global Cash Flow Can’t Justify a Higher Valuation
đźš© Red Flag Story: Broker-Driven Valuation
📉 A deal came in at a $3.5M price tag based on a broker "valuation." Their logic? “Because similar businesses sell for 5x.” But: No normalized cash flow No working capital terms No review of recurring CapEx We valued it at $2.1M. The lender restructured the deal. Buyer still closed—safely. Brokers sell optimism. Lenders need … Continue reading đźš© Red Flag Story: Broker-Driven Valuation
Highland Global Business Valuations 