When Valuation Is More Art Than Science
Founders love certainty. Buyers pretend to love math. And somewhere in between, valuation happens.
On paper, valuation looks scientific. Models. Multiples. Discount rates. Comparable transactions. Spreadsheets that feel precise enough to settle arguments. But anyone who has actually lived through a real M&A process knows the truth: valuation is rarely settled by formulas alone. It’s shaped by judgment, psychology, timing, narrative, and human behavior—often more than founders are comfortable admitting.
I’ve watched founders cling to valuation models as if they were legal contracts. I’ve watched buyers dismiss pristine spreadsheets because something “didn’t feel right.” And I’ve watched deals clear at prices that no model would have confidently predicted—on either side. That tension is exactly why, in The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize that valuation is not an answer you discover; it’s an outcome you arrive at through context, competition, and confidence.
If you’ve listened to the Legacy Advisors Podcast, you’ve heard Ed and me say this repeatedly: buyers use math to justify decisions, but they rarely make decisions based on math alone. When valuation becomes more art than science, it’s not because people are being irrational. It’s because they’re responding to uncertainty in the only way humans know how—by judgment.
Understanding when and why valuation crosses that line is one of the most important mental shifts a founder can make.
Why Valuation Feels Like Science
Let’s start with why founders want valuation to be scientific.
Science feels fair.
Science feels repeatable.
Science feels defensible.
When valuation is framed as math, it suggests:
- There’s a correct answer
- Bias can be eliminated
- Emotion can be removed
- Effort will be rewarded
- Disagreement is resolvable
That’s comforting—especially when you’re selling the most important asset of your career.
Financial models reinforce this feeling. They produce numbers with decimals. They allow sensitivity analysis. They look rigorous. They give founders something concrete to point to and say, “This is what it’s worth.”
But here’s the uncomfortable truth: precision is not the same as accuracy. A model can be internally consistent and still be wrong—because it rests on assumptions about a future that no one fully controls.
Where Science Breaks Down
Valuation becomes art the moment assumptions diverge.
Consider what every valuation model requires:
- Forecasted revenue
- Future margins
- Growth rates
- Risk adjustments
- Terminal values
- Buyer alternatives
None of those inputs are facts. They’re judgments.
Founders and buyers often disagree not because one side can’t do math, but because they see the future differently. Founders see upside because they’ve been building toward it. Buyers see risk because they’ll be responsible for it after the check clears.
That gap is not resolvable with formulas alone.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I explain that valuation arguments are often proxy battles over confidence. The side with more conviction—and better evidence—tends to shape the outcome.
Buyer Psychology: The Invisible Variable
No valuation model accounts for psychology, yet psychology plays a central role in pricing decisions.
Buyers ask themselves questions they rarely articulate out loud:
- Do I trust this founder?
- Does this business feel stable?
- Can my team run this without disruption?
- What happens if something goes wrong?
- Will I regret this decision?
These questions influence valuation just as much as EBITDA.
A buyer who feels confident may stretch on price.
A buyer who feels uneasy may protect themselves through discounts or structure.
Neither response is irrational. It’s human.
On the Legacy Advisors Podcast, Ed and I often talk about “deal temperature”—the emotional undercurrent of a transaction. When temperature rises, valuation becomes flexible. When it drops, even strong numbers struggle to hold.
Timing: The Factor No Model Can Control
Valuation is highly sensitive to timing, yet timing is often treated as an afterthought.
The same business can receive dramatically different valuations depending on:
- Market sentiment
- Interest rates
- Capital availability
- Industry momentum
- Buyer urgency
- Competitive dynamics
A business that sells easily at 7x in one environment may struggle to clear 5x a year later—with no change in fundamentals.
That’s not irrational. It’s contextual.
Founders who believe valuation is purely scientific often wait for the “right number,” only to miss windows where buyers were willing to stretch. In hindsight, those missed windows are expensive.
Valuation isn’t just about what the business is. It’s about when and to whom it’s presented.
Comparable Transactions: Helpful, But Incomplete
Comps are one of the most cited—and most misused—valuation tools.
They feel objective. They anchor expectations. They provide social proof. But they also obscure nuance.
Founders often say:
“Companies like mine sold for X.”
Buyers ask:
“In what market?”
“With what risk?”
“To which buyer?”
“At what time?”
“With what structure?”
Comps describe what happened. They don’t dictate what must happen again.
When valuation is treated as science, comps are treated as rules. When valuation is treated as art, comps are treated as references—useful, but not binding.
The Role of Narrative in Valuation
Founders sometimes bristle at the idea that narrative matters. It can feel manipulative or unprofessional. In reality, narrative is how humans make sense of uncertainty.
Narrative answers questions models can’t:
- Why this company?
- Why now?
- Why this buyer?
- Why does this matter?
- Why will this work post-close?
A strong narrative doesn’t replace numbers—it contextualizes them.
Two companies with identical financials can receive different valuations because one has a clearer story about where it’s going, how it operates, and why it will endure. That story reduces perceived risk.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I stress that narrative is not spin. It’s alignment. When buyers understand the story, they’re more willing to believe the numbers.
Founder Credibility as a Valuation Multiplier
This is uncomfortable but real: founders themselves influence valuation.
Buyers assess:
- How founders communicate
- How they handle questions
- How they respond to pushback
- Whether they’re defensive or open
- Whether they understand their own business deeply
A founder who is clear-eyed about risks builds trust. A founder who overstates certainty erodes it.
Trust doesn’t show up in a model, but it shows up in price.
I’ve seen buyers stretch valuation because they trusted the founder’s judgment. I’ve seen buyers pull back because they didn’t. Same business. Different outcome.
Valuation is not just about the asset—it’s about the steward of that asset during the transition.
When Structure Replaces Price
One of the clearest signs that valuation has become art is when structure enters the conversation.
When buyers are unsure about value, they often say:
“We like the business, but…”
That “but” introduces:
- Earnouts
- Holdbacks
- Seller notes
- Performance milestones
- Rollover equity
Structure is how buyers express uncertainty without walking away.
Founders who insist valuation is scientific often fight structure aggressively. Founders who understand the art behind valuation evaluate structure as a signal—what is the buyer unsure about, and can it be addressed?
Sometimes the best valuation outcome isn’t the highest price. It’s the cleanest realization of value.
Why Models Still Matter
Acknowledging the art doesn’t mean abandoning the science.
Models matter because they:
- Provide discipline
- Force assumptions into the open
- Create a common language
- Anchor discussions
- Expose sensitivity
The mistake is treating models as verdicts instead of tools.
In healthy processes, models inform judgment. They don’t replace it.
On the Legacy Advisors Podcast, we often say that valuation models are maps, not destinations. They help you navigate, but they don’t decide where you end up.
Experience as the Bridge Between Art and Science
This is where experience matters.
Experienced buyers and advisors recognize patterns:
- What risk looks like in different industries
- How buyers behave under pressure
- When to push and when to pause
- How to read signals beyond numbers
They know when valuation discussions are really about:
- Confidence
- Trust
- Timing
- Fit
- Control
At Legacy Advisors, much of our work involves helping founders interpret these signals—so they don’t misread art as rejection or science as certainty.
Why Founders Struggle With the “Art” Part
Founders are builders. They like inputs and outputs. They like cause and effect. The idea that valuation can hinge on intangibles feels unfair.
But M&A is not an exam with a right answer. It’s a negotiation under uncertainty.
Founders who resist that reality often:
- Over-anchor to numbers
- Argue assumptions instead of outcomes
- Miss signals of buyer hesitation
- Push deals into adversarial dynamics
Founders who accept the art:
- Stay flexible
- Listen more closely
- Adjust strategy
- Preserve momentum
That difference alone can be worth millions.
The Moment Valuation Shifts From Science to Art
There’s a clear inflection point in most deals.
Early on, valuation discussions are analytical:
- Financials
- Forecasts
- Multiples
- Comparables
Later, they become judgment-driven:
- Confidence in leadership
- Belief in continuity
- Comfort with integration
- Perception of risk
Founders who don’t recognize this shift often keep arguing numbers long after the real discussion has moved elsewhere.
Understanding where you are in that arc is critical.
Art Doesn’t Mean Arbitrary
This is an important distinction.
Calling valuation “art” doesn’t mean it’s random or unfair. It means it’s contextual.
Art is informed by:
- Experience
- Pattern recognition
- Human judgment
- Situational awareness
Just like investing, hiring, or leadership, the best decisions blend data with intuition.
The founders who get the best outcomes aren’t the ones with the most aggressive models. They’re the ones who understand how buyers think when certainty runs out.
Preparing for the Art of Valuation
Founders who prepare only the science are half-prepared.
Preparing for the art means:
- Reducing uncertainty wherever possible
- Building trust through transparency
- Creating clarity around risks
- Demonstrating leadership depth
- Showing adaptability, not rigidity
When buyers feel uncertainty shrinking, valuation becomes less contentious—even if the numbers don’t change.
That’s the paradox: confidence often expands valuation more than projections do.
A Hard Truth Worth Accepting
Here’s the reality most founders resist until they’ve lived it:
Valuation is not something you prove.
It’s something you convince the market to believe.
Belief comes from evidence, yes—but also from confidence, credibility, timing, and fit.
The sooner founders internalize that, the more effective they become in negotiations.
Final Thought: Master Both Sides
The founders who win understand both sides of valuation.
They respect the science:
- Clean financials
- Credible forecasts
- Market awareness
And they navigate the art:
- Buyer psychology
- Narrative
- Timing
- Trust
- Judgment
Ignoring either side is expensive.
In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I summarize it this way: the best exits happen when numbers make sense and the deal feels right.
That’s not luck.
That’s mastery.
Find the Right Partner to Help Sell Your Business
When valuation becomes more art than science, experience matters. If you want guidance navigating buyer psychology, timing, and judgment—without losing discipline around fundamentals—Legacy Advisors helps founders approach valuation with clarity, confidence, and realism.
Frequently Asked Questions About Valuation as Art and Science
1. Why doesn’t a strong financial model guarantee a higher valuation?
Because valuation is based on perceived risk, not just mathematical output. Financial models depend on assumptions about the future, and buyers discount those assumptions based on their confidence in execution, durability, and leadership. A model can be internally sound yet fail to persuade if buyers don’t believe the underlying story. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I explain that precision doesn’t equal certainty. On the Legacy Advisors Podcast, Ed and I often note that buyers use models to justify decisions they already feel comfortable making. When confidence is lacking, even strong numbers struggle to move valuation.
2. What role does buyer psychology really play in valuation decisions?
Buyer psychology plays a massive role, even though it’s rarely acknowledged explicitly. Buyers are evaluating trust, confidence, and downside protection at the same time they’re evaluating cash flow. If a buyer feels uncertain about leadership, integration, or future stability, that discomfort shows up in price or structure. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize that valuation disagreements are often disagreements about confidence, not math. On the Legacy Advisors Podcast, we frequently discuss how “deal temperature” affects outcomes. When buyers feel good about a deal, valuation becomes flexible. When they don’t, it becomes rigid.
3. How should founders balance data and narrative without sounding like they’re selling a story?
Narrative doesn’t replace data—it contextualizes it. The goal isn’t hype; it’s clarity. A strong narrative explains why the numbers exist, how they were achieved, and why they’re sustainable post-close. Buyers are wary of spin but receptive to coherence. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I explain that narrative is alignment, not manipulation. On the Legacy Advisors Podcast, Ed and I often say that buyers want to understand why a business works, not just that it works. When data and story reinforce each other, credibility rises.
4. When does deal structure become more important than headline valuation?
Structure becomes critical when buyers are uncertain about aspects of future performance or integration. Earnouts, holdbacks, and seller notes are tools buyers use to manage that uncertainty. Founders who focus only on headline price often underestimate how much structure affects realized value and stress. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I emphasize evaluating certainty-adjusted value rather than chasing the highest number. On the Legacy Advisors Podcast, we’ve seen many deals where a lower headline price with clean terms delivered far better outcomes than a higher, risk-laden offer.
5. How can founders prepare for the “art” side of valuation before going to market?
Preparing for the art means reducing uncertainty wherever possible. That includes strengthening leadership depth, documenting processes, addressing customer concentration, being transparent about risks, and communicating clearly. Buyers are more flexible on price when they feel informed and confident. In The Entrepreneur’s Exit Playbook (https://amzn.to/4iG7BAH), I stress that preparation creates confidence long before negotiation begins. On the Legacy Advisors Podcast, Ed and I consistently see that founders who understand buyer psychology and timing navigate valuation discussions more effectively. If you want help preparing for both the science and the art, Legacy Advisors can guide that process.