Insights

How much is my business worth? A straightforward guide for UK SME owners

It's the question every owner asks eventually, usually prompted by something specific: an approach from a competitor, a co-founder wanting to exit, a conversation with an accountant about tax, or simply the dawning sense that the business is the largest asset they own and they have no real idea what it's worth.

The honest answer is that a business is worth what a willing buyer will pay a willing seller — but that's not much help when you're trying to plan. What follows is how professional valuers actually arrive at a defensible figure, what moves that figure up or down, and why the same business can be worth different amounts depending on why you're asking.

A word on "free" valuations

Before the methods, a caution. Much of the "free business valuation" you'll find online comes from brokers who want to win your sale instruction. That gives the number a job to do other than being accurate: high enough to flatter you into signing, or low enough to turn a quick deal. A genuine valuation has no stake in the outcome. That distinction matters more than any formula.

The three methods

Professional valuers rarely rely on a single calculation. They triangulate between three approaches and weigh them according to the business in front of them.

The earnings multiple. For most profitable trading businesses, this is the primary lens. You take a normalised, maintainable profit figure — usually adjusted EBITDA, with one-off costs and owner's personal expenses stripped out — and apply a multiple. The multiple reflects how reliable and transferable those earnings are. As a very rough guide, many profitable UK SMEs change hands somewhere in the region of three to six times adjusted EBITDA, but this varies enormously by sector, size and risk, and a strong business in a sought-after niche can command considerably more.

The net asset valuation. This asks what the balance sheet underpins — the value of what the business owns, less what it owes. For asset-heavy businesses (property, plant, stock) it can be the dominant measure. For a people-based service business with few hard assets, it usually sets a floor rather than the answer.

Discounted cash flow. This values the business on the cash it's expected to generate in future, discounted back to today. It's powerful where there are credible forecasts to work from, and far less so where projections are little more than optimism. It tends to support the other two methods rather than override them.

What actually moves the figure

Two businesses with identical profits can be worth very different sums. The differences usually come down to risk and transferability:

• Recurring revenue. Predictable, contracted income is worth more than income that has to be won again every year.
• Customer concentration. If one client is 40% of turnover, a buyer sees fragility, and the multiple suffers.
• Owner dependence. If the business is really the owner and their relationships, much of the value walks out of the door on completion. Businesses that run without the owner are worth more.
• Growth and margins. A clear, evidenced growth trajectory and healthy margins lift the multiple; flat or declining performance compresses it.
• Quality of information. Clean, timely accounts and good management information reduce a buyer's perceived risk — and reduce the discount they apply for it.

Why the same business has more than one value

The purpose of the valuation changes the answer, because the standard of value changes. A figure prepared to market the business for sale is not the same as a figure for HMRC, for probate, or to settle a dispute between shareholders. A minority shareholding is typically worth less per share than a controlling stake, because a minority holder can't direct the business. So "what is it worth?" is always really "worth to whom, and for what?"

What you can do before you need the number

If a sale is on the horizon, the levers above are also your to-do list. Reducing reliance on any single customer, documenting processes so the business runs without you, locking in recurring revenue, and getting your accounts and management information into good order will all do more for your eventual price than any negotiation tactic. The work is best started a year or two before you go to market, not the week the approach arrives.

Getting a real figure

A rule of thumb will give you a ballpark; it won't give you something you can negotiate from, defend to HMRC, or rely on to settle a disagreement. For that you need a bespoke valuation that examines your actual figures and benchmarks them against comparable transactions in your sector.

At The Business Valuers we produce exactly that — an independent, written valuation for UK SMEs, delivered in 72 hours for a fixed fee, typically £495. Because we don't sell businesses, the figure carries no incentive in either direction. If you'd like to know what yours is genuinely worth, get in touch.