Common valuation mistakes

Every one of these is recoverable if you find it yourself. None of them are recoverable in the third week of due diligence, because by then the issue is no longer the number — it is whether the rest of your file can be trusted.

#1. Applying a multiple to the wrong earnings figure

The expensive one. An EBITDA multiple of 5× applied to an SDE figure overstates value by the owner's salary times five. On a business paying its owner €90,000, that is €450,000 of imaginary value.

The check: if your earnings figure includes your own salary, you are holding SDE and the multiple is 2–3.5×. SDE vs EBITDA covers which one applies.

#2. Benchmarking against businesses several times your size

Published multiples skew toward transactions large enough to be reported. A "6× for logistics" figure is drawn from businesses at €5M of EBITDA, not €400k.

The check: confirm the size band of any comparable before using it. If you cannot find the band, you cannot use the multiple.

#3. Add-backs that only appear in the exit year

The check: apply the same normalisation to all three years. If an add-back only exists in year three, it is not a one-off — it is a decision you made recently.

#4. Ignoring capital expenditure

EBITDA excludes depreciation, so a business that must replace €250,000 of equipment every four years reports the same EBITDA as one that never spends a euro. Buyers notice within an hour.

The check: average three years of capex and put it next to EBITDA in your own summary. If the gap is uncomfortable, it is better that you raise it.

#5. Forgetting the working capital peg

The multiple produces enterprise value. The buyer then expects a normal level of working capital to come with the business, and anything short is deducted from what you receive.

Agreed enterprise value

€2,400,000

5× EBITDA

Working capital shortfall

−€180,000

against a 12-month average

Net debt

−€310,000

loans and leases

Owners who win a quarter-turn on the multiple and lose the peg negotiation come out behind.

#6. Treating a pipeline as revenue

Signed contracts are value. Verbal commitments, renewals "we always get" and proposals out are not, and pricing them as though they were is the fastest route to an earn-out — which converts a price you agreed into a price you have to earn.

The check: split revenue into contracted, recurring, repeat and one-off before anyone asks.

#7. One good year

Valuation follows a trend, not a peak. A single strong year raises the obvious question of why you are selling immediately afterwards.

The check: if the last year is more than 25% above the prior two, expect the buyer to use a three-year average. Use it yourself first.

#8. Underestimating owner dependence

If revenue falls when you take three months off, the buyer is purchasing a job. Nobody has published an estimate of what that costs on price, but the more concrete effect is that funds and most strategic buyers will not bid at all, which removes them before a number is discussed. Owner dependence: strong logic, no price data sets out the evidence.

The check: name who owns each of your top five customer relationships. If the answer is you, five times, that is the finding. Preparing your business for sale covers what to do about it.

#9. A number with no workings

The most common failure is not a wrong figure. It is a right figure that cannot be explained six months later, when a buyer asks why the discount rate was 12% and nobody remembers.

• Every add-back has a document behind it
• The multiple has a named source and a size band
• The forecast states what it assumes about the largest customer
• Someone other than you can follow the calculation