Ask three advisers what your business is worth and you may get three different answers — all of them defensible. That isn't evasion. A valuation genuinely is a range, not a number. What's far more useful than chasing a single figure is understanding how a buyer arrives at theirs, because that's the number that ends up on the offer letter. Having bought more than 30 businesses ourselves, this is how it works from the other side of the table.
The short version
- Most businesses between £500k and £10m are priced as a multiple of adjusted profit — and the adjustments move the price more than the multiple does.
- A valuation is really a price on risk: owner dependence, client concentration and revenue quality decide where in the range you land.
- The headline price is not what you take home — structure and tax decide that.
How buyers actually put a number on a business
For most owner-managed businesses changing hands between £500k and £10m, the starting point is simple: a multiple of profit. The profit figure buyers use is usually EBITDA — earnings before interest, tax, depreciation and amortisation. Strip away the acronym and it just means the cash profit the business makes from trading, before financing costs and accounting choices muddy the picture. The buyer takes that figure, adjusts it, and multiplies it. How big the multiple is depends on the sector, the size of the business, whether it's growing, and — above all — how confident the buyer is that the profits will keep arriving after you've gone.
The adjustments matter more than the multiple
Owners fixate on the multiple. In practice, the arguments that move the price usually happen one step earlier, in the adjustments to profit. If you pay yourself less than it would cost to replace you, a buyer will deduct the difference. If the business has been paying for your car, your travel, or a family member who doesn't really work there, those costs come back out. One-off items — a legal dispute, a bad debt, a year of unusual spending — get stripped so the underlying picture shows through.
Be careful here: every adjustment you claim will be tested during due diligence, and an add-back you can't evidence doesn't just fail on its own terms. It makes the buyer doubt all the others.
Why two similar businesses sell for very different prices
We regularly see two businesses with near-identical turnover and profit attract very different offers. The difference is almost always risk — and every one of these changes what a sensible buyer will pay:
- Owner dependence. How much of the business lives in the owner's head and relationships? If the answer is "most of it", the buyer is buying a job, not a business — and will price accordingly.
- Client concentration. Does one customer account for a third of revenue? Every buyer has seen the deal where the big client left six months after completion. That risk gets priced in.
- Quality of revenue. Income that's contracted and recurring is worth more than income won project by project each year. Predictability is what buyers are really paying for.
- Quality of records. Financial records clean enough to trust quickly keep a deal moving. Messy numbers don't just slow things down — they make everything else you say harder to believe.
A valuation is really a price on risk. Everything that makes your profits more certain makes your business worth more.
The headline price is not what you take home
Almost no deal at this size is all cash on completion day. Part of the price is often deferred — paid over a year or two — and part may be an earn-out, meaning it's only paid if the business hits agreed targets after the sale. Offers are also normally made on a "debt-free, cash-free" basis with a working capital adjustment, which in plain terms means the final amount moves depending on what's actually in the business at completion. Then there's tax. A slightly lower price, structured well and taxed efficiently, can leave more in your pocket than a bigger headline structured badly. When you compare offers, compare what reaches your bank account and when — not the number in the first paragraph.
Where owners go wrong
Three patterns come up again and again. The first is anchoring on someone else's deal — a friend sold at a rich multiple, so that becomes the benchmark, even though their business had different customers, contracts and risks. The second is asking to be paid for potential: buyers pay for what's proven, and if the growth plan is so certain, they'll reasonably ask why you haven't done it yet. The third is treating an online calculator or an insurance-style formula valuation as gospel. Those tools have their uses, but no buyer has ever paid a price because a website said so.
How we approach it
When we value a business, we're not running a formula — we're asking the question we've asked more than 30 times with our own money on the line: what would we pay for this, and why? That means an honest view of the adjustments, evidence behind every number, and a range you can actually defend in a negotiation. Just as importantly, it means telling you what's holding the value down and what you could change before going to market. If a sale is on your horizon, read our guide to preparing your business for sale next.