1st Milestone: More Than One Owner.  When a business grows, a day comes when its founder takes on a partner (or two or three).  They sign a buy-sell agreement, spelling out how much money gets paid out when one partner leaves the business.

• If owner underestimates the value. Suppose two 50/50 owners signed a buy-sell agreement back when the business was new, pegging the value at $X.  The company has grown and now is worth $10X, but the buy-sell was never updated.  The first owner to leave the business (or that owner's family) would get just $.5X; he should have gotten $5X.  Better hope you are not the first to go!
• If owner overestimates the value. Take the same scenario but this time the owners think the business is worth $20X (twice its actual value).  The first owner to leave would get $10X - i.e. 100% of the business' value.  That is nice for him, but devastating to the remaining owner.  Better hope you are not the last to go!

2nd Milestone: Retirement Ahead. Around age 40 to 60, 'retirement' stops being a theoretical concept and starts becoming a serious issue.  How big is my nest-egg?  What will happen to my business?  Such questions loom large.

• If owner underestimates the value. Owners in this category are lucky: there is no downside to having more money than you expected! (But see the 4th Milestone - Estate Taxes.)
• If owner overestimates the value. If you think your business is worth $X, you make certain plans.  When the time comes to retire and you discover it is worth only $.5X, your plans are going to change - dramatically and for the worse.

3rd Milestone: Exiting the Business. Typically around age 50 to 70 owners decide they are ready to leave the business.  A key employee may buy it, or a competitor, or perhaps a son or daughter will take over.

• If owner underestimates the value. Owners who think their business is worth $X when it is actually worth $2X are leaving money on the table.  Maybe they want to, but they should do it by choice, not by accident.  Inter-family transfers are especially dangerous - there are IRS issues as well as 'Mom and Dad gave you more than me' issues.
• If owner overestimates the value. Owners who think their business is worth $X when it is actually worth $.5X have troubles.  They risk killing a sale by demanding too high a price.  Worse, such owners often drive their successors into the arms of competitors.

4th Milestone: Estate Taxes. Only two things in life are certain: death and taxes.  For most owners, their business is their single largest asset.  It is impossible to plan for estate tax obligations without knowing the business' value.

• If owner underestimates the value. You think your business is worth $X and plan accordingly.  But when you leave the scene the IRS decides your business is worth $5X - and your heirs must sell the company fast to pay the estate tax!
• If owner overestimates the value. There is no downside (from an estate tax perspective) if you think your business is worth $X when it is really worth $.5X.