Why You Shouldn’t Waste Time on a Formal Business Valuation

Introduction: Rethinking the Need for a Formal Valuation

If you're thinking about selling your business, you’ve probably been told that your first step is to get a formal valuation. That advice, while common, often leads business owners down an unproductive—and expensive—path. In practice, most buyer-side professionals give little weight to seller-commissioned valuation reports. They’re often based on theoretical models and assumptions that don’t hold up under the scrutiny of an actual transaction process.

The Problem with Traditional Valuation Models

Business valuation reports typically use formulas like discounted cash flow (DCF), comparable company analysis, or “fair market value” (FMV). These models are designed to be consistent and replicable—but not necessarily reflective of reality.

The issue is that M&A deals don’t happen in a vacuum. They occur in a marketplace driven by competition, strategic intent, and timing. Theoretical models can’t always account for those nuances, which is why experienced buyers often disregard them entirely.

Why Buyers See Different Values: A Real-World Example

Let’s look at a common scenario. Imagine two potential buyers considering the same logistics company.

Robert is a financial buyer who approaches the deal analytically. He assesses risk-adjusted cash flows and arrives at an offer of $40 million.

Elena, on the other hand, owns a national freight company. To her, acquiring this business means operational synergies, expanded coverage, and cost reductions. She offers $55 million.

Who's right? They both are—because they each see value through a different lens.

Three Ways Buyers Assess Value

Value in a transaction is rarely objective. Instead, it's shaped by who the buyer is and what they hope to achieve:

1. Fair Market Value (FMV): The Academic Approach

FMV is commonly used for tax and legal purposes. It assumes a hypothetical buyer and seller in an unbiased market. While it has its place, FMV is usually irrelevant in M&A because deals are rarely “hypothetical” or “unpressured.”

2. Investment Value: Tailored to a Specific Buyer

This is what the business is worth to a particular buyer, based on their own goals and strategy. Elena’s higher offer? That’s investment value at work.

3. Strategic Value: The Premium for Synergy

Strategic buyers may offer a premium if the acquisition delivers market advantage, cost savings, or other synergies. These premiums are real—but only when your business fits the buyer’s broader objectives.

The Risks of Relying on a Seller-Ordered Valuation

Most seasoned buyers come equipped with their own models. Here’s why seller-side valuations often get ignored—or worse, cause friction:

• They’re generic. Many reports rely on outdated benchmarks or ignore current market activity.
• They’re misaligned. A valuation rooted in FMV ignores what actually drives offers—like synergies or urgency.
• They raise false expectations. Sellers can become anchored to a number that the market won’t support, leading to breakdowns in negotiation.

A Smarter Way to Prepare for Sale

Instead of spending time and money on a static valuation report, here’s where your focus should be:

1. Get an M&A Advisor Involved Early

An experienced advisor will help you understand what different types of buyers value—and tailor your positioning accordingly. The goal is to present your business in a way that resonates with the market, not a formula.

2. Benchmark Against Real Deals

Look at actual transactions in your industry. Recent comps, valuation multiples, and deal structures give far more insight into likely outcomes than a theoretical model.

3. Understand Buyer Motivations

Is the buyer after market share, new capabilities, or geographic expansion? Aligning your story with those motives increases the likelihood of a premium offer.

4. Highlight the Metrics That Matter

Serious buyers want to see:

• Consistent revenue trends
• Limited customer concentration
• Operational scalability
• Growth runway

These are the levers that actually move deal value.

Debunking Common Valuation Myths

• “I need a valuation to price my business.”
  Not really. You need a strong advisor who understands your market and your buyer pool.
• “Buyers expect to see a valuation report.”
  They don’t. In fact, presenting one can complicate negotiations.
• “FMV reflects what my business is worth.”
  FMV is for accountants. Deal value is contextual, shaped by real-world buyers and their objectives.

Bottom Line: Value Depends on the Buyer

Valuation isn’t a fixed number—it’s a moving target shaped by opportunity, timing, and buyer intent. In the real world of M&A, formal valuation reports rarely drive outcomes. If anything, they can be a distraction.

If you're serious about selling your business, focus on understanding the market and your likely buyers. That’s where true value is uncovered.

Thinking about selling?

Let’s talk. At Breneman Advisors, we help owners understand not just what their business is worth—but who it’s worth the most to.

FAQ: Business Valuations and Selling Your Business

How do buyers actually determine the value of a business?
Buyers assess value based on their goals and context, using frameworks like Fair Market Value, Investment Value, and Strategic Value. Each buyer may see different value depending on what the business can offer them.

What are the risks of relying on a seller-commissioned valuation report?
These reports are often generic, misaligned with buyer intent, and can lead to unrealistic expectations that derail negotiations.

Do buyers expect to see a formal valuation report?
No. Most serious buyers come with their own valuation models. Presenting a seller-ordered valuation can sometimes create unnecessary friction.

Is Fair Market Value a good indicator of what my business is worth?
Not in the M&A context. FMV is useful for legal or tax purposes but doesn't account for synergies, strategic intent, or competitive dynamics that drive actual offers.