The Valuation Gap: Is Fixing Your Business Before You Sell Actually Worth It?

lauint
Jan 23
4 min read

At some point every owner asks the same question:

“Do I spend the next 12–24 months cleaning this up… or just sell as‑is and move on?”

There’s a right and wrong way to answer that.

The wrong way is emotion:

“I’m tired, I just want out.”
“I need X to retire.”
“It should be worth more.”

The right way is math plus honesty:

What would my business likely sell for today?
What could it realistically sell for after improvements?
Is the difference worth the time, stress, and risk to get there?

That difference is the valuation gap. Once you see it clearly, the decision gets a lot easier.

Step 1: Know Your After‑Tax “Freedom Number”

First, forget the business for a second. What do you need?

Your freedom number is:

The amount of money, after taxes and after debt, that lets you step away without worrying about going backwards.

Rough way to get there:

Annual spending you actually want in retirement / next chapter
Other income (investments, pensions, etc.)
What the “gap” is that your portfolio needs to cover
Translate that into a lump sum using a conservative withdrawal rate (say 3–4%)

You don’t need it to be perfect. You just need a good enough target so you’re not making decisions off vibes.

Write it down:

"My after‑tax freedom number is ≈ $________.”

Step 2: Estimate What You’d Likely Get If You Sold Today

Now we look at the business.

You want a realistic range of:

Total price a buyer would likely pay
Cash at close versus notes / earn‑outs

High level:

Estimate normalized earnings (SDE or EBITDA)
Apply a conservative multiple based on risk and owner‑dependence
Adjust your expectations for deal structure (how much at close)

You don’t need a formal valuation for this step. You need a sober, back‑of‑the‑envelope range:

“If I went to market today, I’d probably end up somewhere between $X and $Y, with maybe $Z at close.”

That’s your current exit reality, not your wish.

Step 3: Define a Realistic “Improved” Outcome

Now ask a better question:

“If I spent 12–24 months making targeted improvements, what’s a credible better outcome?”

This is where most owners lie to themselves. They double revenue on paper, assume a higher multiple, and magically hit their dream number.

Don’t do that.

Think in terms of risk reduction and transferability:

Reduce owner‑dependence (you’re no longer the only rainmaker / firefighter)
Clean up financials (buyers and lenders can trust the numbers)
Tighten operations (documented processes, a real #2, basic reporting)

Those moves usually:

Make buyers more confident the business will keep performing
Improve the multiple and / or the percentage of cash at close
Expand the pool of buyers who can actually finance the deal

Define a conservative improved range, not a fantasy:

“If I did the right work for 12–24 months, I could probably move my likely outcome to between $A and $B, with $C at close.”

Step 4: Calculate Your Valuation Gap

Now you can see the thing clearly:

Today range: $X–$Y (with $Z at close)
Improved range: $A–$B (with $C at close)
Valuation gap: the believable difference between those two, after tax

That’s the upside you’re considering working for.

Example format to think in:

“If I sell now, I’m probably looking at ~$2.5M total, maybe $1.7M at close.”
“If I fix the business properly, I might be at ~$3.3M total, maybe $2.5M at close.”
“So the real, believable upside is about $800K total, ~$800K more at close.”

Not perfect math. Directionally true. That’s all you need for this decision.

Step 5: Decide If The Gap Is Worth Closing

Now you can finally ask the real question:

“Is that gap worth 12–24 months of focused work at this stage of my life?”

Here’s a simple rule of thumb I use with owners:

If the believable, after‑tax gap is small
- Example: +$200–300K total
- And you’re already emotionally done
  → It often makes more sense to sell as‑is, cleanly, and move on.
If the believable, after‑tax gap is meaningful
- Example: +$500K–$2M
- And you have the health, energy, and desire to push for 12–24 months
  → It’s usually worth building a focused plan to close that gap.
If you’re unsure on either side
- Don’t default to doing nothing. That’s how owners drift for 5 years and still don’t exit.
- Get to a concrete number and timeline so you can make a deliberate call, not a delayed one.

The Real Win Isn’t Just a

Bigger Check

Closing the valuation gap does two things:

Improves your financial outcome (more money, more upfront, cleaner terms)
Improves your life outcome (a business that can function without you, even before you sell)

For some owners, that second part ends up being more valuable. A company that runs without you gives you options: sell, keep, or step back.

If you want help running this math with your real numbers, that’s exactly what I do with owners on a Valuation Gap Call: we sanity‑check your “today” value, your freedom number, and what an “improved” exit could realistically look like so you can finally decide: fix it, sell it, or stop thinking about it.