We told him his business would sell for about $4 million, and he said, “I’m not taking a penny under twelve.”
He had already paid our front-end fee. We had completed the valuation, researched his market, and talked to people actively buying companies like his.
His cash flow was about $1 million. Businesses in his space were trading around four times cash flow.
There was nothing wrong with his business. The market simply was not paying what he wanted for it. So I told him not to go to market.
Work his number backward.
At four times cash flow, $12 million requires about $3 million of annual cash flow. He had $1 million. He was not $8 million short on price. He was $2 million short on earnings.
I tell owners the same thing every time the gap is real. If you need $12 million and the business supports $4 million, you do not have a negotiation problem. You have a business improvement project.
That distinction is the whole thing, because the two problems have completely different solutions. A negotiation problem gets solved at a conference table. A business improvement project gets solved over a couple of years of operating work.
Owners hear a four and take it as a verdict on the company. It isn’t one. A multiple is a required rate of return, expressed backward.
Pepperdine’s Private Capital Markets research, which surveys lenders, private equity groups, appraisers, and intermediaries every year, states the finding plainly: the cost of capital for privately held businesses varies significantly by capital type, size, and risk assumed.
Size and risk. Not effort. Not quality. Not how many years you put into it.
You can watch this happen in the transaction data. The IBBA and M&A Source Market Pulse survey for the second quarter of 2026 reported the $5 million to $50 million segment moving up from 5.5 to 5.8 times, while the smallest transactions traded lower and drew fewer bidders.
Larger and less concentrated earns a better multiple. That is the mechanic, and it is not personal.
Which means the road to his number ran through the things that actually move a multiple. Earnings. Customer concentration. Owner dependence. Financial records a buyer will believe without a fight.
Take the engagement. Go to market. Count on the seller adjusting his expectations when the offers come in low.
They usually do not adjust. Instead, they get mad.
I don’t think most advisors who work this way are dishonest. Plenty of them have watched a market surprise them and figure it could happen again. The incentive is the problem, not the character. A success fee pays only if something closes, which makes agreeing with a seller’s number the cheapest thing in the world to do.
If you own a house in Highland Park and you are convinced it is worth twice what the comparables say, a good realtor tells you the truth. He does not list it at an unrealistic price and hope you eventually come around.
There is a second cost to listing anyway, and owners rarely see it coming. A company that sits on the market and does not sell is not back to neutral a year later. The buyer universe for a lower middle market business is small. Those buyers talk to each other. The ones who passed at $12 million remember passing.
I suggested he hire a fractional CFO or a consultant who could help him build the earnings necessary to support the value he wanted. Then I gave him two names.
Three things that turn a number like his into a plan:
About one in three business owners who engage us ultimately decide not to go to market after we complete the valuation. Sometimes the value is not there yet. Sometimes the timing is wrong. Sometimes the owner simply decides he is not ready to sell.
That is about a third of our potential success fees walking back out the door.
Only 20% to 30% of businesses that go to market actually sell, according to Exit Planning Institute research on owner readiness. The same Market Pulse survey found that most sellers arrive with less than a year of preparation behind them, or none at all. Those two facts are related.
I would rather tell an owner before we go to market than let a buyer tell him afterward. The buyers will tell you either way. They are just less gentle about it, and by then you have spent a year of your life finding out.
He didn’t need a better advocate. He needed two more years.
If you want to know what your business is worth before you decide anything else, that is where the conversation starts. Contact Optima Mergers & Acquisitions for a confidential valuation conversation.
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