A valuation comes back as a range because the things that decide the final price are not knowable in advance. A buyer can normalize your earnings and apply a multiple typical for your industry, but the outcome still depends on deal structure, buyer appetite, and what diligence finds. The range states that uncertainty honestly. A single number hides it.
That is worth understanding, because the range is not a hedge. It carries information a point estimate throws away.
What does a range actually tell you?
Four things at once, none of which survive being collapsed into one figure.
The midpoint is the buyer's central case: the most likely outcome given what is currently known. The low end is what happens if a known concern proves out, such as concentration turning out to be worse than presented. The high end is what happens if the strengths hold up under scrutiny. And the width between them is a measure of how much the buyer does not yet know.
A buyer who says "somewhere in this band, depending on what we find around customer concentration and working capital" has told you where they are uncertain and what would resolve it. A buyer who says "5.7 million" has told you nothing you can act on. They are either rounding off to keep the conversation moving or declining to show their work.
Why is the width of the range as important as the midpoint?
Because the width is a direct read on perceived risk, and risk is the part you can change.
A wide range usually means unresolved questions: a concentrated customer base, earnings that depend on the owner, financials that have not been through a real examination. A narrow range means a buyer finds the earnings predictable and is not pricing in much doubt.
This has a practical consequence that owners often miss. Narrowing the range is frequently worth more than raising the midpoint, and the same work tends to do both. Diversifying customers, building a management layer, and cleaning up the financials all reduce a buyer's uncertainty, which lifts the low end and tightens the band. The factors involved are the same ones covered in how buyers value a privately held business.
Why can't a buyer just be more precise?
Because three of the inputs are genuinely unknowable until late in a transaction, and no amount of analysis removes them beforehand.
Deal structure changes the number. The same business is worth a different amount depending on how much is cash at close, how much is deferred, whether the seller rolls equity, and how working capital is settled. A headline price and the money an owner actually receives are not the same figure.
Buyer identity changes the number. A strategic acquirer who can remove duplicated costs or sell your product through an existing channel can justify more than a financial buyer underwriting the business standalone. That premium is specific to who is buying, so it cannot be known before you know the buyer.
Diligence changes the number. An offer made on presented financials is provisional. If a quality-of-earnings review strikes a meaningful share of the adjustments in your add-back schedule, the earnings figure moves and the price moves with it.
A range is the honest way to express all three. Precision that ignores them is not more accurate, only more confident.
Why do we refuse to show a single number?
Because once a precise figure lands in an owner's head, it is very hard to dislodge, even when nothing justified it.
Showing only a midpoint would look cleaner and would probably convert better. It would also mislead. An owner who carries "my business is worth 5.7 million" into a conversation has adopted a number that was always a central estimate surrounded by uncertainty, and every subsequent offer gets measured against a benchmark that was never real.
There is a related distinction worth being explicit about. A directional range of this kind is not a formal appraisal. An appraisal is a professional engagement conducted to a defined standard for a defined purpose, such as tax or litigation, and the IRS maintains its own guidance and job aids for valuation professionals reflecting how much rigour that context demands. The two answer different questions. Treating an educational estimate as an appraisal, or the reverse, causes real problems.
What should you do with a range?
Use it to find the questions worth asking, rather than as a target.
Ask which specific factors put you at the low end and which would move you toward the high end. Ask what a buyer would need to see to narrow the band. Then work on those things, ideally well before any conversation about selling, since the durable levers take one to three years to show up in numbers a buyer will credit.
Our valuation calculator returns a low, a midpoint, and a high together, for exactly the reasons above. It is a directional starting point for a more specific and confidential conversation, not a formal appraisal, and the most useful thing in the output is usually not the midpoint but the gap around it.