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Common Myths and Misconceptions

Introduction

Many owners believe that a valuation is only necessary when selling a business, or that the value equals last year’s profit times a simple multiple. These misconceptions can be costly, leading to missed opportunities, disputes, or undervaluation. In reality, valuation is nuanced — incorporating tangible and intangible assets, industry conditions, and future growth projections. By debunking these myths, you gain clarity and position yourself for better decisions.

Myth: Valuation Is Only for Selling a Business

Reality: Business valuations are required in many other scenarios: estate planning, divorce settlements, shareholder disputes, securing financing, or tax compliance. Treating valuation as a one-off exercise can leave you unprepared when life events or business changes occur.

Myth: Value = Last Year’s Profit × a Simple Multiple

Reality: While multiples can provide a rough benchmark, true valuation looks deeper. Intangible assets like brand reputation, intellectual property, and customer loyalty all contribute to value. A company with identical profits to another may be worth far more if it has stronger growth prospects or lower risk.

Myth: Valuation Is a One-Time Event

Reality: Value shifts over time due to market conditions, competition, and company performance. A valuation performed five years ago may be obsolete today. Like financial statements, valuations should be updated regularly to remain useful.

Myth: All Valuation Methods Produce the Same Number

Reality: Different approaches emphasize different aspects of a business. An income approach focuses on future cash flow, while a market approach looks at comparable transactions. A well-prepared valuation blends methods to provide a defensible and balanced perspective.

Final Thoughts

By understanding what valuations are — and what they are not — owners can avoid shortcuts and misconceptions. A professional valuation provides context, clarity, and confidence in decisions that matter.