Valuation vs sale price: why they're not the same number

A valuation and a sale price both answer the question of what a business is worth. They are not the same number, and treating them as interchangeable is one of the more expensive mistakes in private business.

A valuation is a conclusion about a hypothetical transaction

Market value assumes a willing but not anxious buyer and a willing but not anxious seller, both properly informed and neither under pressure. It is a considered answer to what the business would transact for in an orderly market. It is arrived at on a stated basis, for a stated purpose, at a stated date — which is why the basis and the date are part of the number rather than footnotes to it.

A sale price is the record of one real transaction

An actual price reflects the buyers who happened to be at the table, the seller's timetable, the competition for the asset, the way the deal was structured — cash, earn-outs, deferred consideration, liabilities retained — and the strategic value one particular buyer saw in it. It can sit well above a market value, or well below it.

Why the distinction costs money when it is blurred

• For tax and reporting: a value at 30 June 2027 answers a different question from what a buyer paid in 2029.
• For disputes: a court, a revenue authority or a departing shareholder asks what the business was worth on a stated basis, not what one buyer once offered.
• For planning: a valuation tells you what the business is worth now. A sale price tells you what one person was willing to pay, once.

Where they do meet

A completed transaction is good evidence of value, and a valuer will use comparable sales to test a conclusion. What a valuer will not do is assume that one transaction sets the value of every similar business, or that a number in a term sheet is a valuation.

If a transaction is on the horizon, the two questions are worth separating. Get the defensible number first, then negotiate with it in hand. How it works sets out the stages, the turnaround and what each tier delivers.