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

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

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

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

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

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

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

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