Your Business Is Worth 3X More Than You Think

A business owner came to me expecting his company might be worth $1 million.

He'd bought it four years earlier for $800,000. Revenues had doubled. A competitor made an unsolicited buyout offer. He wanted to know if the price was fair.

My valuation came in at $2.2 million.

The previous owner had sold it for 36% of its actual worth. He left $1.4 million on the table because he used a ballpark estimate instead of a professional valuation.

This happens constantly. Most CPAs value businesses the way they'd price a used car: quick, simple, wrong.

The Taxable Profit Trap

Here's the most common method I see: "Taxable Profit multiplied by 3x."

It's fast. It's easy. It's completely backwards.

Every small business owner spends the year minimizing taxable profit. They buy vehicles under Section 179. They maximize deductions. They structure expenses to lower their tax bill.

Then someone uses that artificially deflated number to value their business.

You spent twelve months making that number as small as possible. Now it's determining what your life's work is worth.

What Professional Valuators Actually Do

I start with tax returns too. But then I make normalizing adjustments.

Owner compensation is the biggest one. Some owners don't pay themselves at all. Others pay themselves more than they could hire a replacement for.

When I normalize owner comp to fair market value, I'm asking a different question: what would this company be worth if it ran itself?

That reframe changes everything.

Business owners start thinking about what they'd do with the income if someone else handled operations. Start another business. Take that trip. Actually retire. Grow the company without being trapped in it.

Then there's goodwill. The trained workforce. Brand recognition. Proprietary processes.

Customer relationships that generate referrals.

In some businesses, intangible assets represent 80-90% of total value. Traditional accounting captures maybe 20%.

The SBA even lets you use goodwill as collateral on loans. But only if you have a professional valuation that properly identifies and quantifies it.

Valuing Businesses Like Stocks

Professional valuators use the same methods that price NASDAQ stocks.

A stock is worth the income stream it generates, adjusted for risk. We measure both.

Cash flows come from P&Ls and tax returns, after normalizing adjustments. Risk comes from the build-up method: start with risk-free rates, add equity risk premiums, layer in industry risk, size risk, and company-specific factors.

Two businesses in the same industry can have wildly different risk levels. Quality of management. Financial performance. Operational efficiency. Product uniqueness.

Here's something most business owners don't realize: written SOPs dramatically lower risk and increase value.

Every company I've seen with comprehensive documented procedures has figured out how to operate faster, cheaper, and better than competitors. That's not coincidence. That's transferable systems instead of owner-dependent chaos.

When Valuations Go Wrong

Sometimes my forensic accounting background reveals the opposite problem.

I've found $10,000-per-night hotels on business credit cards. Racehorses. Private island mortgages. Daily wine deliveries to a partner's house, all buried as business expenses.

Partnership structures create massive risk when one partner controls everything and the other is silent. We account for this with discounts for lack of control.

The person with less operational control gets their ownership valued significantly lower.

How To Check Your CPA's Number

Look at how many valuation methods were used.

If it's just one, there's nothing to benchmark against. The report better be thorough with cited sources supporting the value.

If multiple methods were used, they should converge within 5% of each other. If they're 10% apart or more, something's wrong.

Any valuation method applied to the same company under the same conditions should reach the same value. Small differences are fine. Large gaps signal problems.

The Transparency Paradox

One phrase always predicts a disappointing valuation: "The business makes a lot more cash than what I report."

If your financial statements aren't accurate, professional appraisals come in low. I can only work with provable numbers.

Business owners who hide revenues to avoid taxes discover they can't sell their businesses at fair value. Unless they can forensically recreate actual revenues, which is expensive and uncertain.

The irony: they would have been worth more if they'd reported accurately all along.

That civil engineering firm owner thought anything between $800,000 and $1 million would be great. A 20% gain in four years.

Instead, he discovered his business was worth 175% more than he paid for it.

The difference wasn't luck. It was methodology.

Find Out What Your Business Is Actually Worth

If you're wondering whether your business might be worth more than you think, let's find out.

Book a discovery call and I'll walk you through what a professional, SBA-compliant valuation could reveal about your company's true value.