Valuation
The 5 Pitfalls of Business Broker Valuations
By Lee Smith · · 5 min read · Updated
M&A literature is full of articles noting that valuations are "more art than science". That is true. It is also the reason a business broker's valuation deserves a healthy dose of scepticism before you plan your retirement around it.
Editor's note, September 2026: the body of the original 2020 article was lost when the old website was migrated. This is a rewrite from the same title and opening line, expanded with what we have learned across 30 acquisitions since.
A broker wants your instruction. A high number wins it. That single fact explains most of what follows.
1. The multiple is the headline, not the analysis
The easiest way to produce a big number is to apply a big multiple. Brokers will often quote a sector multiple lifted from much larger, listed or private-equity-backed transactions and apply it to a £3m owner-managed contractor.
Real multiples for owner-managed businesses in HVAC, M&E engineering, Renewables and Construction are lower and vary with size, contract quality and how much of the business depends on the owner. Ask which actual deals the multiple is drawn from, and how big they were.
2. "Adjusted EBITDA" adjusted a little too far
Add-backs are legitimate. An owner's above-market salary, a one-off legal cost or a family member on the payroll who does not really work there can fairly be added back to profit.
The pitfall is when everything gets added back: the van, the pension, the site visits, the rainy-day bonus. A buyer will strip those out again in due diligence, and the price falls with them. Better to know that before heads of terms than after.
3. Owner dependence is ignored
If the customers call you personally, if you price every job and if the team looks to you for every decision, a buyer is not buying a business. They are buying you, and you are leaving.
A broker valuation rarely discounts for this. A buyer always does. The fix is not a lower price but a period of transition, which is exactly why our preferred structure is a partnership where the owner stays involved for an agreed time.
4. Customer concentration is glossed over
One customer at 40% of revenue is a risk that changes the value of the business. So is a single framework agreement that expires next year. Broker valuations tend to present revenue as a total; buyers look at where it comes from and how repeatable it is.
5. The number arrives before the accounts do
A valuation produced from a phone call and a turnover figure is a marketing estimate. A valuation produced from three years of accounts, the order book and a conversation about the team is an assessment.
If the number came before the accounts were opened, treat it as the former.
How to get a number you can plan around
- Ask for a valuation from someone with no fee riding on the answer
- Insist on seeing the adjustments and the comparables behind the multiple
- Be honest about owner dependence and customer concentration, because a buyer will find both
- Get a second view from an experienced buyer who does deals your size
At Verdani Capital we give an honest valuation assessment after a first conversation and three years of accounts, and we tell you why. Sometimes it is lower than a broker's number. It is also a number a buyer will actually pay.
For a first view, use our valuation guide or start a confidential conversation.
Related reading: What factors impact business valuations? · How we buy
Questions this article answers
Are business broker valuations accurate?
Often not. A broker earns a fee when you list and a commission when you sell, so the valuation is partly a pitch to win the instruction. Common problems are inflated multiples, adjusting EBITDA too generously, ignoring owner dependence and customer concentration, and using comparables from much larger deals.
How do I get an honest valuation of my business?
Ask for a valuation from someone who has no fee riding on the answer, base it on three years of filed accounts, and insist on seeing the adjustments and the comparable deals behind the multiple. An experienced buyer who does deals of your size will usually give a straighter answer than a broker who needs the listing.