A business valuation estimates value for a specified purpose, date and set of assumptions; deal value describes the consideration negotiated with a buyer. Payment timing, earn-outs, debt and cash adjustments, tax and fees mean neither figure necessarily equals the cash the seller ultimately retains.
By Tony Vaughan · Published · Last reviewed
When they consider the sale of a business, most business owners start with the question, “how much is my business worth?” The answer may influence the timing of the exit and whether to start the sale process immediately or at some stage in the future.
It is vitally important to remember that a ‘business valuation’ and ‘deal value’ are not the same when you are negotiating the sale of your business. Business owners should always explore and consider all the options and find the process that best fits their situation because one valuation formula does not fit all!
What is a Business Valuation?
What a valuation estimate measures
A business valuation estimates the value of a specified business interest on a defined date and basis, using appropriate methods and supporting evidence.
A) How much are the assets (tangibles) worth?
B) How much is the (intangibles) worth?
C) Future or forecast growth and opportunity. Some elements are straightforward to value, others are not.
This process is usually conducted by a professional with accounting, business or other industry knowledge and experience, who is normally instructed by a buyer or the business owner. One of the main challenges with any valuation related to a business sale, is that the final valuation is largely subjective. There are many ways to consider value and there will always be a difference of opinion between professionals, business owners and acquirers, especially around mergers and acquisitions.
Comparable companies and transactions can provide useful evidence, although differences require analysis. Independent valuers can consider strategic benefits where appropriate to the assignment; the valuation basis determines whether buyer-specific synergies are included.
What is Deal Value?
Deal value describes the consideration agreed between buyer and seller. It is not inherently an uplift over a valuation, and the parties should distinguish headline consideration from cash at completion and contingent payments.
A buyer may request transitional support, but its duration and duties are negotiated. Strategic fit can influence an offer, although integration costs and risks may offset potential synergies.
An agreed handover may help manage transition risk. Specify duties, duration, remuneration and liability separately from the consideration for the business.
Careful preparation and negotiation may improve the outcome, but cannot guarantee an uplift in consideration or a reduction in transition risk.
So how much is a business worth?
Written offers provide evidence of buyer interest, not certainty about final proceeds. Compare assumptions, funding and conditions, and distinguish indicative bids from binding agreements.
A completed transaction reflects negotiated terms as well as evidence of value. Neither an nor a valuation report alone establishes the cash a seller will retain.
“Our Negotiated Deal Value (NDV) process is designed for businesses offering future growth potential, businesses that are either currently delivering double-digit growth or businesses that can demonstrate exciting growth potential but require further financial or operational support.
“In summary, you could secure a far better exit deal by starting the sale process 2 to 3 years before you originally planned.”
Common questions
Is negotiated deal value a separate formal valuation standard?
No. It is a description used for a negotiated transaction outcome, not a substitute for a defined valuation basis or a clear breakdown of consideration.
Does a larger headline deal value mean more cash on completion?
No. The headline may include deferred payments, earn-outs or other consideration. Compare the amount due immediately and the risks attached to later payments.
Should post-sale consultancy pay be counted as share sale proceeds?
Not automatically. Payment for ongoing services is distinct from consideration for shares or assets and may have different tax treatment. Obtain advice on the actual arrangements.
Do two written offers establish the final amount I will receive?
No. Offers may be conditional and use different assumptions. Due diligence, definitive agreements and completion adjustments can change the outcome.
Sources
General information from our archive, not personal advice.
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