Almost every entrepreneur who sits down with us already has a number in mind. Sometimes they say it straight away, more often they keep it to themselves and wait to hear ours. Almost always that number answers a reasonable question — what have I built over twenty years — which is not the question a buyer is answering.
A buyer does not ask what your company is worth. They ask what they can afford to pay for the transaction to make sense on their side. Those are two different calculations and they produce two different numbers. The distance between them is the ground a negotiation is fought on.
Where a buyer actually starts
An industrial buyer is buying a position: customers they do not have, a technology they lack, a market they struggle to enter. They will value your company for what it saves or earns them inside their own, and they can afford to pay more than the company would be worth standing alone. That is why two serious buyers, on the same day, can offer figures far apart without either of them being wrong.
A fund is buying a plan. Its starting number is not what you are worth today but what it believes it can realise in five to seven years, discounted by the return it owes its own investors and by the portion it funds with debt. It will hold you to every growth assumption, because an assumption that does not hold translates directly into price.
The three numbers that move price most
In the transactions we advise on, the gap between one valuation and another almost never comes down to revenue. It comes down to three things most entrepreneurs have never seen set out side by side.
- Normalised margin. Not accounting profit, but what would remain for a third-party owner: without above-market directors' pay, without property rented from the family, without the personal costs that are normal in a company you own. It is the figure the multiple is applied to, and it is often not the one you had in mind.
- Dependence on you. If commercial relationships, pricing and decisions all run through you personally, the buyer is purchasing something that may not be there the day after closing. They discount it in the price, or tie it to an earn-out that moves the risk back onto you.
- The quality of the revenue. A million of margin from multi-year contracts and recurring customers is not worth a million from orders renegotiated every year. Two companies with identical accounts can command very different multiples for that reason alone.
The headline price is not the price you receive
The figure that reaches the press is almost always the value of the business free of debt and cash. What lands in your account is another matter: net financial position is deducted, working capital is adjusted against an agreed average, a portion is held back against risks that may surface later, and part of it may be deferred or tied to future results.
We have seen deals signed at a higher price deliver the seller less cash than apparently lower offers. The whole difference sat in those clauses, discussed at the end and in haste, when fatigue pushes everyone to close.
Value is built in the months before the mandate. In the negotiation it is defended: by then it is too late to create it.
What to do, if you are seriously considering it
The preparation that moves price takes time, and time exists only if you start before you are in a hurry. Normalising the accounts, reducing dependence on you personally, putting contracts and documentation in order: this is twelve to eighteen months of work, not three.
Those who come to the table with that work done do not simply get a better price. They get a shorter negotiation, a due diligence without surprises, and fewer clauses shifting risk onto them. Those who arrive unprepared negotiate defensively throughout, and the discount they concede is never just one.