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 📚 Valuation Myth: Book Value Sets a Minimum Value
SBA 7a business valuations
🏦 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
🚩 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 🚩 Red Flag Story: Broker-Driven Valuation
🧠 Business Valuation vs. Real Estate Appraisal
🏢 Real estate appraisals follow rules. Business valuations require judgment. That’s why: FMV (fair market value) for a building can be +/- 2% FMV for a business might swing 20–30% depending on assumptions Appraisers must justify every step. But subjectivity is built into valuation—because businesses are messy. SBA lenders need to understand both sides of … Continue reading 🧠 Business Valuation vs. Real Estate Appraisal
📚 Valuation Myth: A Business Appraisal = Equipment Appraisal
The Myth:A business appraisal is the same thing as an equipment or asset appraisal. The Reality:Business valuations analyze total enterprise (or equity) value — including goodwill, cash flow, risk, and intangibles — while asset appraisals focus on the resale value of physical equipment. Why It Matters:Confusing the two can result in incomplete collateral analysis or … Continue reading 📚 Valuation Myth: A Business Appraisal = Equipment Appraisal
💸 Why the Same Business Can Have Two Different Values
Confused clients often ask: “Why did the valuation change? It’s the same company!” Here’s why: it’s not about the business—it’s about the deal structure. A stock purchase is riskier for the buyer than an asset purchase with leverage. That means a higher required return—and a lower equity valuation. Backed by Nobel-winning theory from Modigliani & … Continue reading 💸 Why the Same Business Can Have Two Different Values
📚 Valuation Myth: Projections Don’t Need Support
The Myth:Future projections are enough to justify value — no need to back them up. The Reality:Projections without clear support are just optimistic guesses. Buyers and SBA lenders need evidence — like written plans, assumptions, customer contracts, and operating history — to trust future performance claims. Why It Matters:Relying on unsupported projections can inflate value … Continue reading 📚 Valuation Myth: Projections Don’t Need Support
🎁 Resource Drop: Addback Risk Review Tool
📘 We created an Addback Review Tool to help SBA lenders validate free cash flow adjustments. Includes: ✅ What counts as legitimate✅ Addback audit checklist✅ Review questions 📩 Click here to grab your copy.
📊 Case Study: “Adjusted” to Death
Seller showed $450K in cash flow after $160K in adjustments. Problem: $36K was “one-time” marketing (used every year) $28K in car leases for sales personnel $19K in non-owner bonuses “not needed post-sale” $27K of normal business insurance Final adjusted FCF: ~$340KValuation dropped. Loan size reduced. Buyer injected more equity. 📌 Always test the addbacks.
🧠 Sin Spotlight: Fantasy Free Cash Flow
🧯 Deadly Sin: Addback Abuse = Fake Cash Flow We’ve seen appraisals with: ❌ Business travel labeled as “discretionary”❌ All advertising added back❌ Working owner and spouse payroll erased with no replacement If the addbacks are inflated, the cash flow is fantasy—and so is the value. 📌 SBA valuations must reflect economic reality, not seller … Continue reading 🧠 Sin Spotlight: Fantasy Free Cash Flow
Highland Global Business Valuations 