10 min read

What Valuation Mistakes Do Sellers Make Before Selling a Practice?

Picture of Alan Salomon, CPA/ABV, CVA Alan Salomon, CPA/ABV, CVA December 12, 2025

If you plan to sell your practice, your valuation will either attract buyers or drive them away. Many sellers get this part wrong. They price based on emotion or old numbers, and then wonder why the deal drags or falls apart.

The market rewards preparation, not assumptions. In 2024, Accounting and Tax practices sold at 95 percent of the asking price with a median of 166 days on market. However, where sellers mispriced, such as Dental practices, which averaged only 79 percent of the asking price, saw listings stretch to more than 200 days on the market. (BizBuySell 2024 Insight Report)

This article is for sellers who want to avoid those mistakes. You will see where valuation errors come from, how they affect buyer behavior, and what to fix before you set your asking price.

Why Accurate Valuation Is Critical

Valuation shapes everything. It affects buyer interest, negotiation leverage, and how close you come to your final sale price. A clear, well-supported number builds trust right from the start.

One mistake sellers make is pricing based on emotion. This is similar to homeowners who list too high and assume the right buyer will pay anything. In today’s market, serious buyers rely on recent performance, not old highlights.

Overpricing causes a listing to sit. The longer a practice stays on the market, the more value it loses in the eyes of buyers. Time raises questions. Doubt grows. Discounts follow. Underpricing has its own cost. Sellers sometimes realize too late that they left money on the table. Once terms are locked in, there is no reset button.

A solid valuation reflects real performance and current conditions. It helps you avoid costly mistakes and gives buyers confidence to move forward.

Understanding How Valuations Are Typically Done

Valuation is not a one-size-fits-all formula. Professionals use a mix of methods to estimate fair market value based on earnings, risk, growth, and the local market. The goal is to price your practice in line with real value. Not assumptions, emotions, or outdated numbers.

Common Valuation Methods

Most practices are valued using a blend of three approaches: asset-based, income-based, and market-based.

The asset-based approach looks at tangible net assets. It is more relevant for asset-heavy businesses.
The income-based approach focuses on expected earnings. It is the most common for service-based practices.
The market-based approach compares your business to similar sales, adjusting for differences in size, location, and performance. Think of it like a market analysis in real estate: comparable sales matter.

Each method reveals different parts of your business’s value story. The right mix depends on what you do, how you earn, and how buyers in your category evaluate risk.

What a Standard Valuation Process Looks Like

The sale process typically starts with a valuation engagement. Expect a request for documents like profit and loss statements, tax returns, payroll reports, and owner compensation history. A valuation analyst will normalize the financials, identify risk factors, and apply methods that fit your business model.

Strong valuations document assumptions clearly. Weak ones leave too much to interpretation. If your valuation can’t explain how it reached the final sale price, buyers will challenge it or walk.

Why Credentials Matter

Not all valuation providers are equal. CPAs who follow the AICPA’s Statement on Standards for Valuation Services (SSVS) and analysts with certifications like the Certified Valuation Analyst (CVA) are trained to apply consistent methods and defend their conclusions.

A credible valuation is not just for buyers. It protects you, helps you avoid costly missteps, and sets a tone of professionalism right from the start.

Pre-Sale Preparation Mistakes That Skew Valuation

Before you even talk about the sale price, pre-sale preparation can quietly distort your valuation. Many sellers treat valuation like a one-time event near the listing, but value is built months earlier through clean records, clear documentation, and risk control. If those inputs are weak, your valuation becomes harder to support, and your sale process slows down.

Buyers pay for confidence. When your numbers do not reconcile, or key documents are missing, potential buyers assume there is more they are not seeing. That uncertainty reduces perceived value and creates friction in negotiations.

Poor Bookkeeping or Missing Documentation

Messy records create doubt fast. If your profit and loss statements do not match tax filings, or revenue recognition changes from month to month, buyers struggle to trust the story you are presenting. Missing documents also drag out diligence, which can cause buyers to shift attention to other deals.

A practical fix is to build a clean data room at least 90 days before you plan to list. Include monthly financials, tax returns, payroll reports, key contracts, lease terms, and a clear summary of owner add-backs with supporting notes. This preparation improves your first impression and keeps the deal moving once buyer interest shows up.

Failing to Normalize Financials

Normalization is one of the most common mistakes sellers make because it feels personal. Sellers often assume buyers will “understand” add-backs, personal expenses, or one-time costs without a clear explanation. Buyers do not guess. They test whether earnings are repeatable and whether the business can sustain the sale price.

Normalization typically adjusts for one-time expenses, discretionary owner costs, and owner compensation that is above or below market. If you underpay yourself, buyers adjust earnings downward to reflect what a buyer would need to pay for the role. If you want a credible approach to fair market value thinking, the IRS provides valuation guidance that reflects how professionals frame evidence and assumptions. See the IRS overview on Valuation of Assets and Valuation Guidance.

Overlooking Legal or Compliance Issues

Legal and compliance issues act as a hidden risk. Even if problems never become lawsuits, buyers price the possibility of disruption, penalties, or post-close cleanup. Common examples include outdated contracts, missing employment agreements, licensing gaps, and unresolved disputes.

Handle this right from the start with a pre-sale legal and compliance review. Resolve issues where you can, and document your remediation steps where you cannot fix everything immediately. Buyers do not expect perfection, but they do expect control, transparency, and a plan.

Top Valuation Mistakes Sellers Make

The biggest valuation mistakes sellers make usually come from three sources: emotion, incomplete records, or not understanding how buyers think about risk. These mistakes are predictable and avoidable. Fix them early, and you improve buyer interest, reduce negotiation friction, and protect your final sale price.

Overestimating the Business’s Worth

Many sellers anchor to a peak revenue year or assume strong buyer demand will justify any number. This is one of the most common mistakes home sellers make when they set the price based on emotion, not market data. But buyers do not pay for past highs. They pay for performance they can repeat.

Like a homeowner who overprices after one bidding war, sellers often end up facing price cuts, longer time on market, or tougher terms. The fix is simple: support your price with stable earnings, clean documentation, and a clear transition plan.

Using Outdated or Incomplete Financial Data

Another mistake sellers make is relying on old numbers or partial-year results. Buyers care about trends, not snapshots. When performance lacks clarity, they adjust offers to account for potential volatility.

Present the business using the most recent trailing twelve months. Build a bridge to prior years to show consistency. If there was a dip, document the cause and the recovery. The longer a property sits without clarity, the more price pressure builds.

Not Hiring a Professional Valuator

Some sellers skip a formal valuation and use rules of thumb, calculators, or anecdotal advice. But pricing a property for sale without professional guidance is one of the biggest seller mistakes. A buyer’s team will test your assumptions, and if they find weak support, they will challenge the price.

A professional valuation provides structure: clean normalization, method selection, risk analysis, and a documented rationale. For a deeper guide on preparing for a sale, see this complete article on Selling a Financial Advisory Practice. This signals that you take the sale process seriously and have set the price based on evidence, not emotion.

Neglecting to Account for Intangibles

Intangible value drives many service-based sales. Reputation, client retention, team strength, and operational systems all shape what a buyer is willing to pay. Sellers often overestimate goodwill without showing why it holds value post-sale.

Buyers only pay for what they can keep. If your business depends heavily on you, the value is fragile. Strengthen it by documenting what makes the practice stable, such as client onboarding, retention metrics, staff longevity, and delivery systems that do not rely on the owner.

Failing to Disclose or Address Business Risks

Buyers expect risk. What they will not accept are surprises. Hiding issues or hoping they will not be discovered signals deeper problems. This leads to reduced offers, longer diligence, or increased holdbacks. Use the same mindset the IRS applies when evaluating closely held businesses: value is shaped by facts, risk, and market outlook.

Assuming Value Equals Asking Price

The asking price is a starting point. Value is what qualified buyers will pay based on evidence, performance, and current market conditions. Overpricing your practice, like listing a home too high, signals misalignment and repels serious buyers.

When sellers list too far above true market value, the practice sits on the market, perceived value drops, and buyer skepticism increases. A better strategy is to set a defensible range and let your documentation and performance create competition.

Timing Mistakes That Impact Value

Timing affects valuation because it shapes what buyers see in your numbers, your team, and your stability. A strong practice can still take a hit if it goes to market during a disruption. Once a practice is viewed as unstable, it becomes harder to justify a premium price.

Sellers often miss timing because they act on pressure or emotion instead of readiness. The best time to sell is when performance is steady, documentation is clean, and the transition story is credible.

Trying to Sell During Downturns

When revenue is falling, churn is rising, or key staff leave, buyers see higher risk. Even if you believe the business will recover, buyers price what is visible today, not what might happen later.

If you must sell during a downturn, support the recovery with proof. Show recent client wins, improved retention, stronger margins, or stabilized expenses. A clear trend shift is more persuasive than explanations.

Waiting Too Long to Exit

Emotional attachment leads many sellers to delay. They hold on until they feel ready, then discover the business has plateaued, or the team is already changing. At that point, the practice looks harder to transfer, which can affect the selling price.

Start preparing 12 to 24 months ahead. Use that time to reduce owner dependency, strengthen processes, and document key workflows. This gives you the business version of being home for sale, ready, organized, clean, and easy to evaluate.

Rushing the Sale Process

Rushing usually comes from life events or fear of market trends. It often leads to weaker preparation and lower leverage. Sellers who rush are more likely to accept terms they did not plan for.

If time is tight, focus on four essentials: current financials, normalized earnings, documented risks, and a transition plan. These items reduce uncertainty and keep your sales process moving even under pressure.

Red Flags Buyers Look For During Valuation

Buyers evaluate more than just profit margins. They study risk, stability, and whether the business can succeed without you. Red flags in these areas lead to lower offers, slower deals, or more restrictive terms. This is where sellers need to stop thinking like owners and start thinking like evaluators. Below are the risk signals that buyers notice quickly.

Revenue Instability

Inconsistent revenue is a warning sign. Sharp swings from month to month or year to year raise questions about reliability. To fix this, break revenue into categories. Show the split between recurring and one-time work, document seasonality, and explain any unusual events. If instability is tied to a known cause, present evidence of recovery with clear data.

Client Concentration Risk

A small number of clients driving most of your revenue creates risk. If one leaves, the deal economics can change overnight. If a single client accounts for more than 15 percent of revenue, buyers will probe further. If the top five clients exceed 40 percent, expect valuation pressure. Even if you cannot diversify now, show that key relationships are stable, documented, and covered by agreements.

Overdependence on the Owner

If you manage sales, client work, and operations, buyers worry about what happens after you leave. Even strong numbers won’t offset risk if the business cannot run without you. Shift core responsibilities to others before listing. Build a team that handles client delivery, and document your systems. Create a transition plan that outlines who takes over what and when.

Lack of Documented Processes

When key tasks are undocumented, buyers worry about continuity. Verbal training and unwritten systems slow diligence and reduce buyer confidence. Document all major workflows: sales, onboarding, service steps, and quality checks. Organized documentation shows that the business will function smoothly during and after the transition.

The Cost of These Mistakes

Valuation mistakes often set off a chain reaction. One flawed assumption or missed detail can trigger a lower sale price, fewer serious buyers, and stricter deal terms. The effects build over time and often surface when it’s too late to fix them. These are the two main areas where the cost becomes visible.

Missed Deals, Lower Offers, and Time on Market

When a listing is overpriced or lacks clarity, buyers hesitate. The longer your practice sits on the market, the more buyers start to wonder what’s wrong. Even if there’s no real issue, perception shifts. Offers come in lower, and buyers ask for more concessions.

Momentum matters. Serious buyers move quickly when pricing aligns with real value and documentation is complete. Without that momentum, sellers often end up negotiating with less qualified buyers or agreeing to terms they could have avoided with better preparation.

This is the same dynamic seen in the housing market. When a home for sale lingers too long, agents recommend price cuts. In these deals, consequences often include extended earnouts, delayed closings, or deals falling apart entirely.

Legal or Tax Complications After the Sale

The valuation process doesn’t end when you close. If your documentation is weak, you may face post-sale disputes. A buyer might challenge how you represented earnings or argue that certain assumptions were misleading.

Tax issues can also arise. If your allocation of goodwill or intangible value isn’t supported by a credible valuation, the IRS could challenge it. This affects both the seller’s tax outcome and the buyer’s deductions.

While this is not tax advice, the principle is clear: defensible valuations reduce legal exposure. Aligning with recognized standards, such as those published by the AICPA, helps protect both sides and keeps the deal stable after closing.

How to Avoid Valuation Pitfalls

Avoiding these common mistakes sellers make is rooted in preparation, not complex formulas. Buyers are drawn to consistency, transparency, and earnings they can trust. When your business demonstrates those traits, your valuation strengthens, and your negotiation position improves.

Fix valuation issues well before you list. Waiting until the sale process is underway makes changes feel reactive and raises questions about why issues were not addressed earlier.

Engage Qualified Advisors Early

Bring in valuation and transaction expertise before you set your asking price. A strong advisor team like Advisor Legacy's Practice Sales for Sellers Service helps you normalize financials correctly, identify risks, and position your business for the right buyer.

Choose professionals who follow recognized standards and can explain their rationale. For example, CPAs who follow the AICPA’s SSVS offer structured approaches. Credentials such as the CVA signal formal training and discipline that many buyers respect.

Working with qualified advisors from the start lets you avoid common pitfalls and makes your valuation process more credible in front of potential buyers.

Clean Up Financials and Legal Structures

Treat your financials like key marketing material for serious buyers. Reconcile statements, document add‑backs with clear notes, and build clean monthly reporting. Resolve obvious legal and compliance issues before starting the sale process.

A clear earnings narrative backed by consistent data becomes the backbone of your valuation, your listing, and your buyer conversations. Think of it as presenting your business like a well-organized portfolio, which is structured, clear, and easy to evaluate.

Get a Professional Third‑Party Valuation Before Going to Market

Getting a third-party valuation through a service like our Practice Sales for Sellers gives you a defensible range and a clear set of value drivers. It also helps you make strategic decisions. You might learn that improving client concentration, building a transition plan, or documenting systems can justify a stronger sale price.

A professional valuation also helps you avoid the biggest mistakes sellers make, such as overpricing, relying on outdated data, or guessing at market value. Even if you do not share the full report with buyers, you will be better prepared to defend your asking price and handle negotiations without hesitation.

Finish Strong: Turn Preparation Into Leverage

Valuation mistakes often begin long before a practice goes to market. From overpricing to incomplete records, small oversights can grow into bigger issues once buyers begin their diligence. The earlier you identify and fix these problems, the more control you have over price, timing, and terms.

You do not need a perfect business to attract strong buyers. What matters most is credibility. That means financials that reconcile, documentation that proves stability, and a valuation grounded in current performance. Not wishful thinking. Sellers who prepare thoughtfully send a powerful signal: this business is worth what we’re asking.

If you're planning to sell, now is the time to take action. Start by exploring Advisor Legacy’s Practice Sales for Sellers to get expert guidance and a defensible valuation that strengthens your position from day one.

About the Author: Alan Salomon, CPA/ABV, CVA

Alan Salomon, CPA/ABV, CVA, is a valuation and tax specialist with more than a decade of firm ownership and hands-on experience serving closely held businesses. He provides accredited valuations for buy/sell agreements, estate and gift matters, divorces, shareholder/member disputes, and fair value reporting, as well as personal, business, and fiduciary income tax preparation and planning. Alan’s articles explain how valuation approaches apply to advisory practices, how to document defensible conclusions, and where tax planning can materially impact deal structure and after-tax proceeds. His work emphasizes compliance with professional standards and practical documentation that stands up to scrutiny.

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