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
Lending and Underwriting Tips
📚 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
📚 Valuation Myth: You Can Just Average the Three Approaches
The Myth:Use the income, market, and asset approaches — then simply average them. The Reality:Different approaches carry different relevance depending on the company’s circumstances. Weighing them equally can misrepresent the most accurate indicator of value. Why It Matters:Incorrect weighting can mislead SBA lenders, buyers, and sellers about true economic reality. Practical Tip:Reconcile approaches thoughtfully — … Continue reading 📚 Valuation Myth: You Can Just Average the Three Approaches
📚 Valuation Myth: Strategic Buyers Set Fair Market Value
The Myth:If a strategic buyer is willing to pay more, that sets fair market value. The Reality:Fair Market Value (FMV) is based on a hypothetical financial buyer — not a synergistic or strategic buyer who sees special value others wouldn’t. Why It Matters:Confusing strategic premiums with FMV can result in misleading valuations for loans, taxes, … Continue reading 📚 Valuation Myth: Strategic Buyers Set Fair Market Value
Highland Global Business Valuations 