A Beginner’s Guide to Business Valuation and the Asymmetric Perspective
A Beginner’s Guide to Business Valuation by Jacob Orosz walks you step-by-step through valuing a business with $1 million to $50 million in revenue.
Chapter 1 introduces the purpose of valuation and establishes the core idea that every business has two values: what it’s worth to the current owner and what the market will actually pay. The author explains that valuation is ultimately about understanding future cash flows and the risks attached to them.
Chapter 2 explains the key financial statements buyers examine. It walks the reader through income statements, balance sheets, and cash flow statements and shows how adjustments are made to reveal “owner benefits,” also called seller’s discretionary earnings. The message: the numbers you’ve been using for taxes are not the numbers a buyer uses for valuation.
Chapter 3 introduces the different valuation approaches: asset-based, income-based, and market-based. Asset-based is grounded in tangible items; income-based relies on future earnings and risk; market-based compares similar businesses. Beginners learn that real buyers triangulate across all three.
Chapter 4 goes deeper into income-based valuation using capitalization and discounted cash flow methods. The author demonstrates how risk is priced into the rate used to convert earnings into value. The higher the uncertainty, the lower the valuation multiple.
Chapter 5 explains industry multiples. This chapter helps owners understand why some industries command higher or lower multiples, emphasizing recurring revenue, predictability, customer concentration, and cyclicality. It also warns that “rule of thumb” multiples are only starting points.
Chapter 6 addresses adjustments, add-backs, and normalization. Here the author highlights owner perks, discretionary expenses, and non-recurring items that must be recast to show true economic benefit to the buyer. Clean books equal a higher perceived value.
Chapter 7 focuses on qualitative drivers of value: management depth, systems, documentation, brand, competitive moat, customer relationships, and the transferability of the company’s success without the seller. Intangibles are often the largest value determinant.
Chapter 8 teaches the concept of deal risk. The author explains that buyers discount valuations when they perceive key-person risk, revenue concentration, customer churn, or operational fragility. Lowering perceived risk raises valuation.
Chapter 9 introduces the role of professional appraisers, brokers, and M&A advisors. It clarifies what each does, how they think, and how they justify their valuation work. Sellers learn the difference between a theoretical valuation and a market-tested one.
Chapter 10 concludes by giving practical guidance for preparing a business for sale, including improving financial transparency, increasing recurring revenue, reducing owner dependence, and shoring up systems. The chapter stresses timing: valuation can fluctuate significantly based on macro conditions, industry cycles, and buyer demand.
The ASYMMETRY® Perspective: How This Applies to Asymmetric Return Potential
Business valuation is fundamentally about asymmetry. Sellers are trying to convert years of concentrated, illiquid business risk into liquid net worth. The spread between what the business produces today and what a buyer is willing to pay is driven by asymmetry in risk, uncertainty, and optionality. Earnings that are stable, transferable, and repeatable are worth more because they create convexity: small improvements, like reducing key-person risk or documenting processes, can lead to disproportionately higher valuation multiples. Buyers pay a premium for lower volatility, predictable cash flows, and systems that scale without the owner. That is a classic asymmetric payoff structure: small operational reinforcements in advance of a sale can produce outsized valuation uplift. The book also aligns with our ASYMMETRY® philosophy that risk must be defined and priced. In valuation, the discount rate, the multiple, and the deal structure are all ways of expressing risk. A seller who reduces uncertainty converts future risk into present value. Optionality shows up in deal terms. Earnouts, seller financing, and rollover equity create asymmetric payoffs where sellers may capture upside while limiting further operational exposure. Just like in portfolio management, the goal is to shape the distribution of outcomes: cap the downside, expand the right tail. Preparing for a sale is, in practice, an exercise in engineering asymmetry.