What Is Your Business Actually Worth?

The number most owners get wrong.

If I asked you what your business is worth, you'd give me a number. Most owners can. The problem is that thenumber they give me is rarely the same number a buyer would give.

Not because one of you is wrong about the facts. But because the way you value your business and the way a buyer values it are completely different exercises.

You're thinking about what you've invested — the years, the risk, the money, the sacrifices. You're thinking about what the business earns, and what feels fair given everything it took to build it. A buyer is thinking about none of those things. They're thinking about one thing: the risk-adjusted return on their investment. And those two calculations produce very different numbers.

How business valuation actually works

For the vast majority of SME acquisitions in the £1M–£20M range, the starting point is EBITDA — earnings before interest, tax, depreciation, and amortisation. This is a proxy for the cash the business generates, stripped of accounting and financing decisions.

A buyer applies a multiple to that EBITDA figure. The multiple reflects how certain they are that the earnings will continue — and grow — after they buy. A business that's seen as lower risk commands a higher multiple. A business with more uncertainty commands a lower one.

For service businesses in the£1M–£10M range, EBITDA multiples typically sit between two and five times, though they can go higher with the right circumstances. The difference between a three-times and a five-times multiple on £600,000 of EBITDA is a million pounds. That's not a trivial difference. And it's entirely within your control.

The factors that move the multiple

Understanding the multiple is understanding what buyers are paying for. These are the variables that move it:

Revenue quality.

Recurring revenue —subscriptions, retainers, long-term contracts — commands a higher multiple than project-based income. A business where 70% of revenue is contracted and renewing automatically is dramatically more valuable than one that has to re-win its income each year.

Client concentration.

If your three largest clients account for 60% of revenue, a buyer sees risk. If the largest client is 12% andthe rest is distributed across a wide base, that's a different risk profile. Client concentration is one of the most common valuation discounts in SME acquisitions.

Owner dependency.

How much of the business's value is tied up in you personally? If clients deal with you directly, relationships are yours, and key decisions flow through you — a buyer is not buying a business. They're buying a dependency on an outgoing founder. That gets heavily discounted.

Management team depth.

A capable management team that will stay post-acquisition is worth a great deal to a buyer. It means continuity, retained knowledge, and the ability for the business to operate independently from day one.

Margin trajectory.

A business with improving marginssignals operational leverage and pricing power. A business with flat ordeclining margins raises questions about sustainability.

What most owners miss

Most owners focus on growing revenue. Buyers focus on growing EBITDA. These are not always the same thing.

A business turning over £5M at 8%EBITDA margin is worth considerably less than a business turning over £3M at18% margin — particularly if the lower-margin business requires more people, more infrastructure, and more working capital to function.

The lever that most owners can pull fastest is margin improvement. That might mean pricing discipline —charging what the service is worth rather than what feels comfortable. It might mean removing clients or product lines that are revenue-rich but margin-poor.In most businesses I work with, there is a two-to-four percentage point margin improvement available without a fundamental change to the model. At a four-times multiple, even modest EBITDA improvement adds substantial exit value from a decision that didn't require a single new customer.

Getting an honest view of where you stand

The most valuable thing you can do before you think about selling is to get an honest, independent assessment of what the business would actually achieve in a sale today — and what the gap is between that and where you want to be.

Not from your accountant, who understands the numbers but may not have seen enough deals to benchmark them. Not from a broker incentivised to tell you an optimistic number. From someone who has been close enough to these transactions to give you an honest picture.

That conversation, early enough, gives you two or three years to do something about it. Which is exactly the kind of time that turns a mediocre exit into an outstanding one.

Ready to build abusiness that works without you?

If this resonates, let's have a conversation. Book a free 20-minute Scale & Exit Diagnostic, and we'll identify the one or two things that would make the biggest difference in your business right now.

Book your diagnostic at simonellson.com or call 01305 566250.