EBITDA, Net Profit & The Art (and Psychology) of Valuation By David Sheret – CEO, SEO

Bradley Lay is always worth reading on here IMHO. He recently shared a thoughtful post recently on the potential risks of relying too heavily on EBITDA multiples when valuing a business. It prompted me to reflect on how we view value—not just through the lens of numbers, but through judgement, timing, and narrative.

EBITDA is often seen as a quick shorthand. But like many shortcuts, its usefulness depends on how and when it’s applied.

The Rise of EBITDA: A Tool, Not a Truth

My belief from looking back at the history of EBITDA it wasn't created to mislead. But it was created to attract. It is a practical way to compare operating performance across businesses with different financing structures, tax positions, and asset-heavy models. It gained traction during the leveraged buyout era when lenders needed a consistent benchmark to assess debt capacity.

Adjusted EBITDA followed naturally—intended to account for non-recurring or exceptional items. Over time, however, interpretations of what counts as “exceptional” have become broader, sometimes stretching credibility. The more open to interpretation, the more open to subjective valuations.

None of this makes EBITDA inherently flawed. It simply means we need to view it as part of the picture, not the whole frame.

Bradley’s Point Still Stands: Reality Is in the Cash

One of the points Bradley raises—rightly IMHO—is that a business is ultimately worth what someone is prepared to pay for it. That number may be informed by models or multiples, but it rarely flows directly from them.

When assessing a business for purchase, what I have witnessed over the years is buyers and investors weigh both quantitative and qualitative factors. The financial fundamentals—net profit before tax, tangible assets and liabilities, and available free cash—form the foundation of valuation. Yet, these numbers alone do not define the true potential of an enterprise. Intangible elements are equally pivotal: the capability and cohesion of the team, the innovative edge of its technology, the depth of client relationships, and the strategic positioning of its brand. Taken together, these elements shape the resilience and long-term value of a business in an evolving market.

There are also defensive strategies where valuation has less to do with traditional financial metrics and more to do with positioning—protecting market share, limiting competitor influence, or securing a foothold in a strategic segment. And then, of course, there’s the less rational side of deal-making—the moments when ego, impulse, or poor judgement override disciplined analysis. These instances remind us that, while valuation frameworks provide structure, they are never immune to human error or hubris.

Some buyers will see untapped potential in the intangibles. Others may view them more cautiously. The variance in those views is what makes valuation more of a negotiation than a calculation.

Humans Aren’t Binary—Neither Are Valuations

It’s tempting to want a neat answer: “Is the business worth £5 million or £10 million?” But valuations are rarely that binary. People bring emotion, ambition, time pressure, and perception into the room.

That’s why SEO like to advise our clients to approach valuation as both a strategic and psychological exercise. Preparing for a deal may take 12 to 18 months. It might involve careful presentation of future potential. In some cases, it involves standing firm in court or during complex family negotiations. And sometimes, it means hearing difficult truths about what the market will realistically pay.

There’s no one formula IMHO that works in every situation. But realism, transparency, and well-evidenced narratives go a long way.

Final Thought

Bradley’s post is a timely reminder that valuation isn’t just about multiples or models. It’s about people, perspective, and preparation.

The most suitable valuation approach is the one that fits the context—and the person on the other side of the table.

If you’re considering buying, selling, or even just understanding your company’s position more clearly, try not to fixate on a single number. Instead, focus on the story behind that number—and how well it can be articulated with integrity and confidence.

I’d welcome hearing your perspective. How do you approach valuation in your world?

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