The Founder Who... Didn't Know What Their Business Was Worth
Receiving an unsolicited offer for your company may seem like a shortcut to a successful exit, but without competitive tension from multiple buyers, founders risk leaving real value and better terms on the table. In this video, Kirk Michie explains why "if you only have one buyer, you have no buyers" holds true in M&A.
Understanding what a business is worth is an essential part of business exit planning. In this video, M&A advisor Kirk Michie explains why founders should establish a realistic market value before selling a business or responding to an unsolicited offer.
Business valuation in an M&A transaction is often based on a multiple of revenue or cash flow, commonly measured as EBITDA or seller’s discretionary earnings. The appropriate method and multiple depend on the company’s size, financial performance, industry, and buyer market. A public company’s price-to-earnings multiple or a standalone discounted cash flow analysis may not accurately represent what a private buyer will pay.
Kirk also discusses when to hire a broker or speak with an investment banker for market-based valuation guidance. A formal valuation may be necessary for an ESOP, management buyout, or internal sale, but many founders can begin by consulting active transactional professionals. The central takeaway is simple: know what the market may pay before beginning the sale process.
Why Knowing Your Business’s Value Matters
Knowing what your business is worth is an important part of business exit planning.
Many founders have a target sale price based on their retirement goals, financial needs, or the income they currently receive from the company. Those factors matter personally, but they do not determine what buyers will pay.
Market value is typically influenced by:
Financial performance
Growth potential
Buyer demand
Business risks
Recent sales of comparable companies
How Buyers Value a Business
In many M&A transactions, valuation is based on a multiple of revenue or cash flow.
For larger companies, cash flow is often measured using EBITDA—earnings before interest, taxes, depreciation, and amortization. Smaller, owner-operated businesses may instead be valued using seller’s discretionary earnings or earnings before owner compensation.
Founders should be cautious about applying a public company’s price-to-earnings multiple to a privately held business. A discounted cash flow analysis may also be useful, but it does not necessarily reflect what buyers are currently willing to pay.
Why You Should Know Before You Sell
Understanding your likely valuation range before going to market helps you evaluate opportunities more clearly.
Without that context, it can be difficult to know whether:
An unsolicited offer is fair
A buyer is making a low offer
The price reflects current market conditions
The buyer is a good fit but the price is wrong
A sale would meet your personal financial goals
Knowing the likely value may also reveal that it makes sense to improve the business before pursuing an exit.
When to Hire a Broker or Investment Banker
Founders do not always need to begin with a formal business valuation. An investment banker or business broker who is active in the market can often provide an informed perspective based on recent transactions and buyer demand.
A business with more than approximately $2 million in EBITDA—or around $1.5 million or more in net income—may be better suited to an investment banker. A smaller business valued using seller’s discretionary earnings may be better served by a business broker.
A formal valuation may still be necessary for an ESOP, management buyout, or another type of internal sale.
Get a Clearer View Before Making a Decision
Candor Advisors helps founders understand what the market may pay and what they should consider before starting a sale process.
If you are thinking about selling your company, evaluating an unsolicited offer, or simply exploring your options, speak with Kirk Michie and the Candor Advisors team. An initial conversation can help you understand where your business stands and identify the right next step before making a major decision.
