3/12 | Value vs. Price

3/12 | Value vs Price: why what you're worth isn't what you'll be paid

A valuation gives you a number.
The market gives you a cheque.
And the two are rarely the same.

My neighbor sold his company for 8x profit.

Maybe that's true. But are you really comparing apples to apples?

In the previous articles, we talked about value: first the multiple, then normalized EBITDA. In other words, the calculation based on your real profits. Today we tackle the other half of the story: the price. The actual cheque a buyer is willing to sign.

Hold on to this distinction, because everything flows from it:

Value is theoretical. Price is set by the market.

Why two companies with the same profit don't fetch the same price

Take two companies generating exactly the same normalized EBITDA.
On paper, they're "worth" the same.
Yet one will sell for far more than the other.

The reason comes down to one word: risk.

A buyer doesn't pay for yesterday's profits.
They pay for the likelihood that those profits continue after you're gone.
The stronger that likelihood, the bigger the premium they apply.
The more fragile it is, the steeper the discount.

In practice, the buyer looks at three pillars:

Risk: does your business stand on more than one leg?
If a large share of your revenue depends on a single big client, the buyer sees danger. The day that client walks, a big chunk of your profit walks with it. To protect against that possible drop after your departure, they lower their price.
Example: a client that makes up 40% of your revenue can be enough to knock a point or two off your multiple, even if your business is profitable.
Transferability: does the business run without you?
This is the most underrated pillar. If your clients buy because they like you, if the key relationships, the passwords, and the important decisions all run through you, then the business loses part of its value the second you leave the office.
The buyer asks a simple question: "Am I buying a business, or am I buying a job?" A transferable business earns a premium. An individual talent, hard to transfer, gets a discount, if it sells at all.
Comparables: what's the market doing right now?
Even if your business is solid, it doesn't operate in a vacuum. The buyer looks at recent transactions in your sector. If the industry slows, if financing tightens, if buyers grow scarce, your multiple drops, no matter how hard you've worked internally.
That's the part of the price you don't control. But knowing it keeps you from anchoring your expectations to a neighbor's number, when that neighbor sold in better market conditions.

A valuation is an opinion. A price is an agreement.

That's the whole difference. You can get the finest valuation in the world: until someone signs for that amount, it stays an opinion.
The price is born when what you ask for meets what a buyer agrees to pay, once they've weighed the risk, the transferability, and the market.

To tip the scale toward a premium rather than a discount, you have to prove one thing: that your business is a robust machine, not just an individual talent.

Simon's advice

Don't fall in love with your valuation. The theoretical number is a useful starting point, not a promise. The real work is removing the reasons a buyer would have to negotiate you down. Every risk you eliminate before selling is one less discount, and often a full multiple gained.

Your homework for this week

Identify the biggest "invisible" risk in your business. If you had to sell tomorrow morning, what's the first thing a buyer would use to negotiate the price down? A dominant client? A missing key-employee contract? Aging technology? A dependence on you?
Use Optionality Free Preliminary Valuation Report as a baseline, and ask yourself honestly: could this risk cost you 1x or 2x on your multiple? You've just found your first value project.

Next article → 4/12: we switch modules. We leave theory behind and move to action, with the business risks that weigh on your multiple and, above all, how to mitigate them.