As M&A consultants, we frequently work with entrepreneurs looking to sell their businesses, and one of the most common challenges we encounter is the unrealistic valuation expectations from sellers. Particularly in India, entrepreneurs tend to develop a deep emotional attachment to their businesses, often viewing them as more than just assets—they see them as their “baby.” This connection, while understandable, can conclude judgment when it comes time to sell.

Entrepreneurs invest years, sometimes decades, in building their businesses from the ground up. The effort, sweat, and sacrifices they make often result in a personal bond with their companies. This emotional attachment means they can find it difficult to see their business through a buyer’s eyes. As a result, sellers often expect higher valuations than what the market or financials justify.

One of the key things promoters need to understand is that business value is driven by several factors: market conditions, company financials, profit margins, future growth potential, and the technology they are working with. Having a clear picture of these aspects helps in setting a realistic expectation. However, the challenge comes when we talk about “goodwill.”

Goodwill, the intangible value of a business, is a tricky area. There’s no formula to accurately calculate it, which is why promoters often make the mistake of assigning a disproportionately high value to it. They expect buyers to pay a premium for goodwill, sometimes without realizing that unless the business is exceptionally stable, has strong growth potential, or is working with breakthrough technology, buyers are unlikely to pay a high premium.

In fact, only businesses that meet specific criteria—such as a strong and irreplaceable market position, or innovative technology with massive future potential—can demand the kind of goodwill value that some promoters expect. Unfortunately, many businesses don’t fit into this category. Over time, industries change, competition increases, technologies become outdated, and market conditions shift.

Despite these realities, many entrepreneurs still cling to unrealistic valuations, making it difficult to find a buyer. The unfortunate outcome? These businesses often remain unsold, and the only option left is liquidation, which results in lost opportunities for both the seller and the market.

 

At the end of the day, having a realistic understanding of business value and goodwill is essential for a successful sale. Entrepreneurs must separate their emotional attachment from the practicalities of the market to ensure they don’t miss out on good opportunities