Most business owners have a general idea of what their house is worth. They probably know the value of their investment portfolio, too. But ask them what their business is worth – the single largest component of their net worth – and most will admit they don’t really know.
That’s not just an academic issue. It’s a planning issue. It’s a financial health issue. And for some, it’s a retirement issue.
According to CNBC, 98% of small business owners don’t know the value of their company. That’s an astonishing statistic when you consider how much time, energy, and sacrifice go into building a business.
After decades working in valuation, I’ve seen what happens when owners guess at their company’s worth or rely on rules of thumb, “back-of-the-envelope estimates”, or something their accountant once told them. Those shortcuts can be costly.
That’s why I wrote A Valuation Toolbox for Business Owners and Their Advisors – to help business owners understand not only what their company is worth, but why.
Valuation Is More Than a Number
Too often, valuation is treated as a one-time event, something you do when you’re selling your business, planning your estate, or responding to a triggering event. But that mindset misses the bigger picture.
A valuation is a strategic planning tool.
It tells you how your business creates value, how that value changes over time, and what steps you can take to protect and enhance it. It’s not just about knowing a number; it’s about understanding what drives that number.
Here are a few examples of why getting a professional valuation matters:
- Planning for an eventual exit. Whether you think you’ll sell in two years or twenty, you can always be bought. Knowing your value puts you in control of the conversation when that call comes.
- Attracting investors or securing financing. Lenders and investors make decisions based on valuation. Having credible data puts you in a stronger negotiating position.
- Succession and estate planning. A valuation helps ensure fairness among heirs and compliance with IRS standards.
- Strategic decision-making. Knowing what truly drives your company’s value helps you allocate resources more effectively.
Simply put, you can’t manage what you don’t measure.
Common Valuation Mistakes
Over the years, I’ve seen many well-intentioned business owners make the same avoidable mistakes. In The Valuation Toolbox, I highlight twelve of the most common here are a few that stand out:
1. Relying on rules of thumb. Just because someone in your industry sold their business for “eight times EBITDA” doesn’t mean that multiple applies to you. Every business is unique: different margins, different growth prospects, different risk profiles.
2. Ignoring intangible assets. Your people, brand, relationships, and intellectual property often represent the majority of your company’s value. Yet traditional financial statements don’t capture those assets.
3. Using outdated financials. A valuation is as-of a specific date. Using old or incomplete data distorts the picture.
4. Looking for shortcuts. Free online calculators and “ballpark” estimates can be dangerously misleading. When it comes to one of your most valuable assets, “close enough” is never good enough.
Each of these errors can lead to poor decisions like selling too low, paying too much in taxes, or making strategic choices based on flawed assumptions.
The Problem with Ballpark Estimates
I get it: business owners are busy. When someone asks, “What’s your company worth?” it’s tempting to offer a quick answer based on a multiple or a gut feeling.
But valuation isn’t guesswork, it’s analysis.
A proper valuation looks beyond the surface to examine factors like customer concentration, recurring revenue, leadership depth, and market positioning. It considers the quality of your financial information and the risks that may affect future performance.
Ballpark estimates ignore all of that nuance. They might give the illusion of clarity, but they’re often directionally wrong, and that can be expensive.
If you wouldn’t trust a “ballpark” appraisal of your home when deciding whether to sell, why would you use one for your business?
Value Is Forward-Looking
One of the most important truths about valuation is that it’s forward-looking. The value of your business isn’t based on what you did last year; it’s based on the future economic benefits your company is expected to generate.
That’s why forecasting matters. Too many companies don’t take the time to build a thoughtful financial forecast. Yet that forward view is what investors, lenders, and potential buyers care most about.
A solid forecast doesn’t have to be perfect, it just has to be thoughtful and supported by realistic assumptions. It becomes your roadmap for growth and a key component in your company’s value.
Human Capital: The Hidden Driver of Value
One of the most overlooked components of valuation, and one that I explore in depth in the book, is human capital.
Financial statements tell a story about financial capital and intellectual capital, but the real differentiator is how well those are managed by human capital. In fact, I’ve said many times:
The value of a business is a function of how well the financial capital and the intellectual capital are managed by the human capital. You’d better get the human capital part right.
Companies that invest in their people consistently outperform those that don’t. Engaged employees create stronger cultures, better customer experiences, and more resilient organizations, all of which directly impact valuation.
A Call to Business Owners and Their Advisors
Every business owner should know what their company is worth and not just once, but on an ongoing basis. Markets shift. Conditions change. A valuation you commissioned five years ago is likely out of date today.
Think of it like a medical checkup for your business. You wouldn’t skip your annual physical and hope for the best; you shouldn’t do that with your company’s value either.
That’s why I created A Valuation Toolbox for Business Owners and Their Advisors. It’s a collection of practical insights and real-world examples drawn from my career, written to help business owners and their trusted advisors make smarter decisions about valuation, planning, and strategy.
Whether you’re thinking about succession, exploring growth capital, or simply want to understand your company’s true worth, A Valuation Toolbox is designed to be your go-to guide.
Because when business value matters, you need the right tools.
About the Author:
Dave Bookbinder is Executive Director of Valuation Services at Haefele Flanagan. Dave is known as an expert in business valuation and the person that business owners and entrepreneurs reach out to when they need to know what their most important assets are worth. Known as a collaborative adviser, Dave has served thousands of client companies of all sizes and industries.
Working closely with business owners, CFOs, Controllers, and CEOs, Dave strives to build relationships that add value for the long term. Dave is also the host of Behind The Numbers, the business talk show that digs deeper to understand what matters in business. Available wherever you get your podcasts.
If you believe that people are a company’s most valuable asset, and want to learn more about the impact that people really have on the value of a business enterprise, you might like the Amazon #1 best-selling books, The NEW ROI: Return on Individuals (white cover), and The NEW ROI: Going Behind The Numbers (black cover).
Dave’s latest book, A Valuation Toolbox for Business Owners and Their Advisors demystifies valuation methods and sheds light on common mistakes, and was recognized as a top new release in Business, Mergers & Valuation.
For future insights and articles, connect with Dave on LinkedIn, like him on Facebook, follow him on Twitter / X. Please visit www.NewROI.com to learn more and be sure to check out Dave’s thought leadership at CFO University. While you’re here, you might also enjoy some of Dave’s other articles.
Views and comments are always my own.
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Copyright 2025 – Dave Bookbinder