The Myth:EBITDA represents the company’s cash-generating power. The Reality:While EBITDA strips out some non-operational expenses, it ignores maintenance CapEx, working capital changes, taxes, and debt service needs. Free cash flow — not EBITDA — drives true value. Why It Matters:Relying only on EBITDA can dramatically overstate a company’s economic benefit to a buyer. Practical Tip:Always … Continue reading 📚 Valuation Myth: EBITDA Tells the Full Story
SBA 7a Business Valuation Myths
35 Business Valuation Myths Every SBA Lender Should Know
In the world of SBA 7(a) lending, understanding business valuation is essential — and misunderstanding it can be costly. From misapplying earnings multiples to overestimating goodwill or ignoring normalization adjustments, even well-meaning lenders can fall for common myths that jeopardize compliance with SBA SOP 50 10 8 and increase the risk of guaranty repair or denial. This blog series unpacks 35 of the most common valuation myths in SBA lending, breaking down each one with clear, lender-focused insights. Whether you’re reviewing an independent appraisal or screening a deal pre-LOI, these posts will help you recognize red flags, ask better questions, and protect your portfolio.
📚 Valuation Myth: Multiples Are Plug-and-Play
The Myth:You can apply the “industry standard” multiple and call it a day. The Reality:Multiples vary wildly based on factors like size, margins, growth, risk, customer concentration, and management strength. There’s no one-size-fits-all multiple. Why It Matters:Using a wrong or generic multiple can seriously misprice the business — risking bad investments or flawed underwriting. Practical … Continue reading 📚 Valuation Myth: Multiples Are Plug-and-Play
📚 Valuation Myth: Working Capital Isn’t Part of the Deal
The Myth:Working capital is separate and doesn’t affect valuation. The Reality:Most deals assume a normalized level of working capital included in the sale. A business without sufficient working capital is like a car without gas — operational but not functional. Why It Matters:Missing working capital adjustments can cause major surprises during deal closing or loan … Continue reading 📚 Valuation Myth: Working Capital Isn’t Part of the Deal
📚 Valuation Myth: Owner’s Opinion = Business Value
The Myth:The business is worth whatever the owner believes it’s worth. The Reality:Fair market value is based on what a hypothetical willing buyer would pay — not what the current owner emotionally believes. Sentiment, legacy, and effort don’t automatically translate into transferable cash flow. Why It Matters:Overreliance on owner belief leads to unrealistic pricing and … Continue reading 📚 Valuation Myth: Owner’s Opinion = Business Value
📚 Valuation Myth: DLOM Only Applies to Minority Interests
The Myth:Only minority interests require a discount for lack of marketability (DLOM). The Reality:Even controlling interests in private companies lack liquidity. Buyers still face risk and time hurdles when selling private businesses — control doesn’t erase marketability challenges. Why It Matters:Ignoring DLOM can materially overstate the value of a privately held business — risking flawed … Continue reading 📚 Valuation Myth: DLOM Only Applies to Minority Interests
📚 Valuation Myth: History = Destiny
The Myth:If the business performed well historically, its value is guaranteed. The Reality:Valuation focuses on expected performance — not just historical results. Past success doesn’t guarantee future results, especially if market conditions, customer bases, or management teams are changing. Why It Matters:Relying on history can create blind spots for buyers, lenders, and owners planning their … Continue reading 📚 Valuation Myth: History = Destiny
📚 Valuation Myth: Credit Score Determines Business Value
The Myth:If the owner has excellent personal credit, the business is worth more. The Reality:Personal credit supports loan approval but has no direct bearing on business cash flow or risk profile. A high FICO score doesn't mean the company is profitable, scalable, or durable. Why It Matters:Confusing underwriting approval with valuation quality can lead to … Continue reading 📚 Valuation Myth: Credit Score Determines Business Value
📚 Valuation Myth: Net Income = Free Cash Flow
The Myth:Net income on the P&L reflects how much cash the company produces. The Reality:Free cash flow adjusts for CapEx, changes in working capital, taxes, and other real cash needs. A profitable business on paper can still be cash-starved in reality. Why It Matters:Mistaking net income for cash flow can dramatically distort valuations and lending … Continue reading 📚 Valuation Myth: Net Income = Free Cash Flow
📚 Valuation Myth: Valuation Is Just a Formula
The Myth:Valuation is simple math — just plug in the numbers. The Reality:While valuation relies on financial modeling, it also requires judgment, analysis, and experience. Risk adjustments, market dynamics, and normalization aren’t captured by a basic spreadsheet. Why It Matters:Undervaluing or overvaluing a business by relying solely on formulas exposes lenders, buyers, and sellers to … Continue reading 📚 Valuation Myth: Valuation Is Just a Formula
📚 Valuation Myth: Book Value Equals Market Value
The Myth:If the balance sheet looks strong, the business must be valuable. The Reality:Book value reflects historical costs, not economic value. A company with strong book assets but poor profitability could be worth much less than its recorded net assets. Why It Matters:Relying solely on book value ignores the critical driver of business worth: future … Continue reading 📚 Valuation Myth: Book Value Equals Market Value
Highland Global Business Valuations 