How much is my business worth?

It's the first question every business owner asks when they start thinking about selling, and it's the right one. Everything else, the timing, the preparation, the choice of buyer, flows from having a realistic understanding of what your business could achieve in the current market.

The short answer is that most UK businesses are valued as a multiple of their adjusted annual profit. The longer answer is that "adjusted annual profit" and "multiple" both contain a lot of nuance that's worth understanding before you make any decisions.

Tip: you can use our free valuation calculator to understand what your business could be worth.

What does "a multiple of earnings" actually mean?

When someone says a business sold for "5x" or "6x", they mean the sale price was five or six times the business's annual adjusted earnings. If your business generates £200,000 in adjusted profit and the market multiple for your sector is 5x, the indicative valuation is around £1 million.

That sounds simple, and conceptually it is. But the two variables, the earnings figure and the multiple, both require careful thought.

What is EBITDA and why does it matter?

EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortisation. It's the standard measure of operating profitability used in business valuations because it strips out factors that vary depending on how a business is financed and structured, giving a cleaner picture of the underlying earning power.

For smaller businesses (typically those with an owner-operator generating under £1m in turnover), you'll sometimes hear the term SDE, or Seller's Discretionary Earnings, instead. SDE adds the owner's salary and benefits back into the profit figure, on the basis that a new owner-operator would effectively be "buying a job" along with the business. For larger businesses with a management team in place, EBITDA is the standard measure.

The important thing is which earnings figure you use and how it's calculated. Get this wrong and your valuation will be meaningless.

What are "adjustments" and why do they matter?

Raw accounts rarely tell the full story. Most owner-managed businesses have costs running through them that wouldn't exist under new ownership, or that are inflated beyond market rate. Common adjustments include:

Owner's salary and benefits. If you're paying yourself £120,000 but a manager to do your role would cost £65,000, the difference is an adjustment that increases the earnings figure.

Personal expenses. The car, the phone, the subscription your spouse uses, the dinner that wasn't really a client dinner. All of these suppress your reported profit. Adjusting them back gives a truer picture.

One-off costs. Legal fees from a dispute that's now resolved. The cost of a relocation. A bad debt that won't recur. These are stripped out because they don't represent the ongoing cost of running the business.

Related party transactions. If you're renting the premises from yourself at above or below market rate, or paying a family member for services, these need normalising.

A word of caution: buyers and their accountants will scrutinise every adjustment you make. If you can't justify an adjustment clearly, don't make it. Overstating your adjusted earnings is the fastest way to lose credibility in a negotiation. We've seen deals collapse at the due diligence stage because the seller's adjustments didn't hold up under examination.

What determines the multiple?

This is where it gets interesting. The multiple is essentially a measure of how much a buyer is willing to pay for each pound of your annual profit. A higher multiple means they see your business as lower risk, more scalable, or more strategically valuable. A lower multiple means they see more risk or less opportunity.

According to the 2024 SME Valuation Index, the median EBITDA multiple across all UK sectors climbed to 5.4x, up from 5.0x the previous year. But averages hide a lot of variation. Software businesses were trading at 8x or above. Retail businesses were closer to 3.5x. Healthcare and education sat somewhere in the middle, typically between 5x and 8x depending on the subsector.

The main factors that move your multiple up or down:

Sector. Some industries simply command higher multiples because of growth prospects, barriers to entry, or buyer demand. Regulated sectors like care and education tend to sit in the mid-to-upper range because the regulatory burden creates natural moats.

Size. Larger businesses attract higher multiples. A business generating £100,000 in EBITDA might achieve 3x to 4x. The same business generating £500,000 might achieve 5x to 6x. At £1m and above, multiples can stretch further. This is known as the "size premium" and reflects the reduced risk associated with larger, more established businesses.

Growth trajectory. A business with revenues growing at 15% year-on-year will attract a higher multiple than one that's been flat for three years. Buyers are partly paying for the future, not just the present.

Recurring revenue. Businesses with contracted, subscription-based, or otherwise predictable revenue are worth more. A consultancy with annual retainer clients is more valuable than one that wins each engagement from scratch.

Owner dependence. The single biggest multiple suppressor for SMEs. If you are the business, the buyer is effectively paying for something that walks out the door on day one. Building a team and reducing your involvement before selling is one of the most effective ways to improve your valuation.

Customer concentration. If 40% of your revenue comes from one client, that's a risk. Buyers will either reduce the multiple or structure the deal to protect themselves (usually through an earn-out or retention clause).

What about the property?

For businesses that own their freehold premises, the property can represent a significant portion of the overall value. This is particularly common in care (care homes, nursing homes) and education (nurseries, independent schools).

There are two broad approaches. The property and the business can be sold together, with the property value wrapped into the overall price. Or they can be separated, with the business sold as a going concern and the property retained by the seller and leased back to the buyer. Each approach has different tax and financial implications, and the right answer depends on your circumstances.

If property is a significant component, get a proper valuation from a surveyor in addition to the business valuation. The two figures don't simply add together; they interact.

Why is the valuation shown as a range?

Because no two transactions are identical. The final sale price depends on how the business is marketed, how many qualified buyers are competing, the terms of the deal, and the negotiating dynamics between the parties. A range gives you a realistic picture of what is achievable rather than a single figure that implies false precision.

Something sellers sometimes find frustrating is that a valuation is not the same as a price. The valuation tells you what the business should be worth based on the data. The price is what an actual buyer agrees to pay, which is influenced by competition, timing, and how well the sale process is managed. A well-run process with multiple interested buyers will typically deliver a result toward the top of the range. A poorly managed one, or a sale conducted under time pressure, often lands at the bottom.

How accurate is an online business valuation?

An online tool gives you a useful starting point. Our valuation calculator uses real transaction data and sector-specific multiples to generate an indicative range, which is more reliable than generic "rules of thumb" you'll find elsewhere. But it can't account for everything: the strength of your team, the quality of your client relationships, the condition of your premises, or the specifics of your local market.

Think of it as a screening tool. If the range it produces is in the ballpark of what would make selling worthwhile for you, it's worth having a more detailed conversation. If it's nowhere near, that's useful to know too, and it might point to areas where you could improve the business before revisiting the question in a year or two.

Our calculator is free, confidential, and doesn't require any contact details. If the result is interesting and you'd like to understand the detail behind the numbers, James is happy to have a conversation.