Every deal begins with a number, yet buyers and sellers rarely arrive at the table with the same one.
A valuation gap is not a sign that something has gone wrong; it is a normal feature of most transactions.
But if this gap is not understood or managed carefully, it can stall a deal, kill it entirely or leave a seller accepting an outcome that does not reflect what their business is actually worth.
For anyone thinking about selling, understanding why the gap exists and what can be done about it is one of the most important points to appreciate.
Why sellers value the way they do
When a seller arrives at a number, it is rarely arbitrary.
It often comes from expectations based on comparable businesses, or what feels right after years of hard work.
For many sellers, particularly those who have built something from scratch, there is an emotional side to dealmaking too.
The business is not just a financial asset to them; it represents years of work and commitment.
The Genius Group grows turnover from £4m to £210m in four years
That’s completely understandable and it is not something a good adviser will dismiss, but it can push expectations beyond where the market will go.
Sellers also tend to think about what the business could become, considering future growth, untapped potential and what they believe is achievable under the right ownership.
Why buyers see things differently
Buyers typically begin with comparable transactions and market data.
They look at what others have paid for similar businesses in the same sector, then weigh up strategic value, synergies, opportunities to cross-sell to customers and operational improvements that can be unlocked.
Key risks include over-reliance on sellers, which can reduce buyer confidence; a management team that is thin or untested; and a customer base where one or two clients account for most of the income and profit.
These are the factors that can drive a buyer’s view of valuation down, yet many sellers have no idea they are being assessed on them.
When the gap becomes a problem
One of the most common mistakes sellers make is naming their price too early.
The moment a number goes on the table, a ceiling has been set.
A good adviser does not name a price. Instead, they build the narrative, communicate the value drivers and create competitive tension.
One of the most powerful tools available is running a competitive process.
This is when multiple credible buyers are interested at the same time, allowing the market to set the value.
If multiple parties come back within a similar range, the market is telling you the value. If you only have one offer, it is much harder to know whether that number is right.
A buyer who arrives at the table during a competitive process can end up paying a premium because they understand the quality of the business and know there is genuine competition for the deal.
Understanding deal structure
Achieving the desired valuation is not the same as securing the right deal.
In today’s market, there is greater risk apportionment between buyers and sellers, making it more common than a few years ago for a portion of the payment to be held back rather than paid in full on completion.
For a straightforward business sale, this often takes the form of deferred consideration.
The deferred portion carries some uncertainty, but it can be the only way to reach a total valuation that may not otherwise be achievable.
Earnouts work similarly but are tied to hitting specific targets, usually around profit or revenue.
How earnouts are structured matters enormously. A good adviser will challenge the structure and negotiate a balanced deal.
What a seller can do about it
Closing the valuation gap is not solely about negotiating on price. From a seller’s perspective, the priority should always be maximising day-one value.
Once that has been pushed as far as it will go, the conversation can turn to what else might be structured into the deal, such as deferred payments, performance-related earnouts or a retained stake.
The most effective step a seller can take is to engage an adviser early, not once the decision to sell has been made, but well before.
Advisers can help shape the story of the business, identify what is holding value back and start addressing those issues before a buyer ever enters the picture.