What your business is worth, and why the buyer arrives at a different number

In brief. The value of a business and the money its owner receives are different quantities, and a bridge stands between them: net debt, working capital and earnings adjustments. A dispute about price almost always turns out to be a dispute about what counts as earnings and what sits inside the perimeter. These divergences can be resolved before going to buyers; after the buyer's first question the cost of resolving them multiplies.

Three different figures, all called «the price»

Measure	The question it answers	Who uses it
Enterprise value	what the operating business is worth in total, irrespective of how its purchase is funded	buyer, analyst, bank
Equity value	what the shares are worth — the subject of the agreement	the parties
Cash in hand	what the owner receives after tax, settlements and retentions	the owner

The owner almost always has the third figure in mind while the market discusses the first. Between them sit two operations, each capable of moving the result by tens of per cent.

The bridge from enterprise value to share price

The classic formula reads:

Equity value = enterprise value − net debt ± working capital adjustment

Net debt is wider than bank borrowings. It captures leasing, shareholder loans, factoring, overdue tax liabilities, declared dividends and off-balance-sheet obligations that will have to be met.
Working capital is compared against its normal level for that business. If the inventory has been run down and receivables collected by completion, the buyer takes on a company that immediately requires cash — and deducts that amount from the price.

Most of the difference between «we agreed a price» and «the money arrived» is lost on this bridge. The mechanics are fixed in the agreement: locked box or completion accounts, and the definitions of debt and normal working capital.

Normalised earnings: the principal battleground

The buyer applies the multiple to normalised EBITDA — the earnings the business generates in the ordinary course under professional management. Typical adjustments:

Adjustment	What is done	Whose favour
Owner's remuneration	replaced with a market salary for a hired director	usually the seller's
Rent from related parties	restated to a market rate	depends on the relationship to market
Personal costs run through the company	excluded where evidenced by documents	the seller's
One-off income and costs	excluded: asset sales, fines, litigation costs, subsidies	both sides'
Under-accrued costs	added: deferred maintenance, provisions, holiday pay	the buyer's

Every adjustment requires documentary support. An adjustment with evidence lifts the price; an adjustment without it reduces confidence in every other figure at once.

On unrecorded revenue. Income outside the accounts is left outside the price by the buyer: it is closed to verification, closed to protection in the agreement and closed to the bank funding the purchase. The practical conclusion is single: such a stream is brought into the recorded perimeter in advance, a year or two before the transaction.

The multiple belongs to a specific company

Someone else's multiple belongs to someone else's company: it was struck at a different size, in a different sector, with a different client structure and different quality of accounts. The discounts buyers apply most often:

Dependence on the owner. Key relationships resting on the owner leave with them, and the buyer prices that in.
Client concentration. A single customer carrying a large share of revenue reads to a buyer as risk.
Quality of accounts. Divergence between management and statutory accounts moves the conversation from price to trust.
Size. A smaller company trades at a lower multiple on otherwise equal terms: it carries less resilience.
Liquidity and stake. A minority holding is worth disproportionately less than a controlling one.

How it looks in figures

An illustrative example of the mechanics. The values are chosen for clarity; sector data provides the market reference point.

Step	Amount
Reported EBITDA	100
+ owner's remuneration above market	+15
− one-off gain on an asset sale	−10
− deferred maintenance accepted by the buyer	−8
Normalised EBITDA	97
× multiple (5 for illustration)	485 — enterprise value
− net debt, including shareholder loans and leasing	−120
− working capital shortfall against normal	−25
Equity value — the share price	340

The owner in this example was quoting 500, the buyer offered 340, and both were calculating in good faith. The difference of 160 is the bridge — whose existence the seller discovered during negotiation.

What narrows the gap

Do the normalisation first and the multiple last. A multiple works on a correct base.
Assemble the evidence for each adjustment in advance. A document rather than an account: contract, statement, certificate.
Know your net debt before negotiation. Shareholder loans and leasing surface in any event; the only question is at which stage.
Name the weaknesses first. A shortcoming found by the buyer costs more than one disclosed by the seller: it undermines confidence in the whole model.
Obtain an independent valuation. A document you can cite changes the character of the conversation, and the buyer's bank considers financing once it exists.

What we do here

Earnings normalisation, calculation of net debt and normal working capital, valuation by three methods and the bridge to share price — the M&A practice. Our fee is calculated on equity value, the money the owner receives — why that basis.

Methodological basis

The approach reflects standard transaction practice in the RUB 300m – 5bn segment: income, market and cost methods, normalisation of EBITDA, and the bridge from enterprise value to equity value.
The numerical example is illustrative and is given to show the mechanics of the calculation.

This material is informational and serves a reference purpose. Decisions on a specific transaction are taken on the basis of documents and together with a specialist adviser: every situation requires separate analysis.