Business valuation
What is your business actually worth?
Most guides give you a multiple and stop. A multiple tells you roughly where the market sits; it does not tell you what anybody will pay for your company.
This explains how a buyer gets to a number — the adjustments, the things that move the multiple, and the test that sets the real ceiling on price.
The three ways a business gets valued
A business is usually valued in one of three ways: on its assets, on a multiple of its adjusted profits, or on what it can afford to pay back. For a profitable owner-managed engineering or manufacturing company, the profit multiple sets the headline figure — but what the business can carry in debt service decides whether that figure survives contact with a real buyer.
Asset value
Plant, stock, debtors, property, less what is owed. It sets a floor. For a trading business it is almost always the lowest of the three, which is why a company wound up realises so much less than one sold — covered in more detail on closing or selling.
A multiple of adjusted profits
The headline method, and the one everybody quotes. Adjusted EBITDA multiplied by a sector multiple gives enterprise value.
What the business can carry
The one buyers actually use when they are spending their own money, and the one nobody explains. More on that below.
The multiple, and why size moves it on its own
UK industrial and manufacturing transactions cluster around a median of roughly 5.3 times EBITDA, with most privately owned SME manufacturers trading somewhere between four and seven times.
What surprises most owners is how much of that range is explained by size alone, before anything about the quality of the business is considered:
| Adjusted EBITDA | Typical multiple | Implied enterprise value |
|---|---|---|
| £200,000 | ~3.1× | ~£620,000 |
| £500,000 | ~4.1× | ~£2.05m |
| £1,000,000 | ~5.1× | ~£5.1m |
| £5,000,000 | ~7.1× | ~£35.5m |
A business earning £1m is not five times as valuable as one earning £200,000. It is roughly eight times as valuable, because it attracts a higher multiple as well as having more profit to multiply. Larger businesses are seen as less fragile, they have management depth, and they are accessible to a wider pool of buyers.
Ranges are market observations, not a quotation. Sector, customer mix and the state of the plant move individual businesses well outside them in both directions.
Adjusted EBITDA — the number the multiple applies to
It is never the profit in your accounts. An owner-managed business is run to minimise tax, not to look good to a buyer, and a buyer knows that. Normalising it works in both directions.
Added back
Your own remuneration above a market rate for the job, pension contributions beyond what a replacement would get, vehicles and costs that are really personal, one-off legal or professional fees, and genuinely exceptional items that will not recur.
Taken off
A market salary for whoever replaces you — which for a hands-on owner-manager is often £70,000 to £100,000 and sometimes two people. Deferred maintenance and capital expenditure you have been putting off. Any revenue that leaves with you. Rent at a market rate if you own the premises personally and have been charging the company a nominal amount, or none.
That last pair catches more owners than anything else. A business earning £1.1m where the owner draws £40,000 and charges no rent on his own building is not earning £1.1m. On a market salary and a market rent it might be earning £900,000 — and that is the number the multiple applies to.
What a buyer actually checks
Five things, and they move the multiple far more than the sector does.
How much the business depends on you
The single biggest factor. If quoting is instinct rather than process, if the good customers deal with you personally, if nobody else can price a job and get it right — then a large part of what is for sale walks out with you on completion day. Buyers discount that heavily, and they are right to.
Customer concentration
One customer above about 30% of revenue is a discount. Above 50% it may be a reason not to proceed at all, however good the relationship. The buyer is not questioning your relationship; he is asking what happens if their procurement director changes.
Management depth
Is there a supervisor, an estimator, somebody running the office? A business with two or three capable people underneath the owner is worth materially more than the same business without them — and it is the one gap you can close deliberately.
The state of the plant
Walk a works and you can see five years of capital expenditure decisions. Deferred maintenance is not a hidden cost; it is a visible one, and it comes straight off the price.
The quality of the numbers
Management accounts produced monthly that reconcile to the year end, job costing that shows which work actually made money, a clean aged debtor ledger. Where these do not exist, the buyer prices the uncertainty, and uncertainty is always priced against the seller.
The test that sets the real ceiling
Here is the part no broker’s website explains. A buyer funding a purchase with debt cannot pay a price the business cannot service — whatever the multiple says it is worth.
Take a business with £900,000 of adjusted EBITDA, bought at four times:
| Enterprise value at 4.0× | £3,600,000 |
| Debt at 55%, 10% over 6 years | £1,980,000 |
| Annual debt service | −£440,000 |
| Seller note, 15% of value over 5 years | −£108,000 |
| A salary for whoever runs it | −£200,000 |
| Capital expenditure reserve | −£90,000 |
| Headroom left | £62,000 |
Sixty-two thousand pounds of annual headroom on £900,000 of profit. That is thin, and it is why a serious buyer will not go much above four times on a business this size — not because he is trying it on, but because five times leaves nothing for a bad quarter.
Which means the most useful question is not "what multiple will I get?" but "what can this business carry?" Reduce the debt needed — through a seller note, an earn-out, or retaining the property and letting it to the buyer — and the price can go up, because the structure absorbs it.
An owner who understands this negotiates better. He stops arguing about the multiple and starts arguing about the structure, which is where the money actually is.
The tax on what you receive
For 2026/27, Business Asset Disposal Relief charges 18% on the first £1m of qualifying lifetime gains, against 24% at the standard higher rate. The lifetime limit is £1m across your lifetime, not per transaction.
It is worth knowing the direction of travel: BADR was 10% until April 2025, 14% for 2025/26, and 18% from April 2026. Each change was announced at a Budget and took effect the following April.
That has a practical consequence. If you are three years from selling, the relief you are planning around may not be the relief that applies. Plan on the deal, not the tax rate — and take advice from your own accountant, who will know your position.
What to do eighteen months before
Almost everything that moves the number takes time, which is why owners who start early do better than owners who start when they are tired.
Write down how things are done. How you price. How you decide what to take on. The checks before something leaves. This is the single highest-return thing you can do, and it costs nothing but discipline.
Let somebody else do them. Written process is worth little until someone other than you is following it. A buyer does not want your manual; he wants evidence that the business runs without you.
Get the numbers straight. Monthly management accounts that reconcile. Job costing that shows actual margin by job. Eighteen months of clean history is worth more in diligence than any amount of explanation.
Deal with concentration. If one customer is 40% of revenue, two years of deliberate effort can take it to 25%. That alone can move the multiple.
Spend the capex. Deferred maintenance comes off the price at more than it would have cost you to do.
A business that can run for a month without its owner has four realistic options. One that cannot has one, and it is the cheapest one.
Next step
I will give you a range and my reasoning, not a multiple off a website.
If you send three years of accounts and a management view of the current year, I will build the model and come back with a range and how I got there. No obligation and no fee, and you keep the reasoning whether or not we do anything.
If the number is lower than you hoped, I will explain which parts of the business are holding it down — which is usually more useful than the number itself.
Confidential either way. I will not contact your staff, your customers or your suppliers.