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
business valuation for brokers
📚 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
🧠 WACC ≠ Cost of Equity
❗WACC is not the same as the cost of equity.And for SBA 7(a) lenders, understanding the difference can protect your deal. When a business has debt in the capital structure, you need to value it using the weighted average cost of capital (WACC)—not just equity rates. WACC reflects risk and capital structure.Cost of equity? Only … Continue reading 🧠 WACC ≠ Cost of Equity
📚 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
🚩 Red Flag Story: Addback Shenanigans
⚠️ A BDO brought us in to review a $1.9M acquisition. Everything looked solid… until it didn’t. The seller's addbacks included:🚗 $26K in personal car leases💼 $15K salary to the seller’s spouse📣 $48K in critical marketing (not actually discretionary)🐾 And… $2,400 in “pet care” 🐕 Once we normalized earnings correctly, the value dropped by over … Continue reading 🚩 Red Flag Story: Addback Shenanigans
Highland Global Business Valuations 