How to value a business

Valuing a business is part science and part judgement. There are well-established methods (multiple of profit, multiple of revenue, asset-based) and well-understood ranges for each sector, but two valuers will rarely arrive at exactly the same figure. Understanding the methods lets you push back intelligently on a broker's number or a buyer's offer, instead of accepting it on trust.

What follows walks through the three main valuation methods used for UK SME sales, the typical multiples by sector, the adjustments buyers and accountants make, and what to do once you have a number you trust.

The three main methods

Most UK SME valuations sit somewhere between three established methods.

Multiple of adjusted profit (most common). Take the most recent year's profit, adjust for one-off items and owner-specific costs (the addbacks), then multiply by a sector-appropriate number (typically 2x to 6x for owner-managed businesses). The multiple you apply depends on growth rate, customer concentration, recurring revenue, and owner-dependence.

Multiple of revenue (used for high-growth or recurring-revenue businesses). Useful where profit is artificially low (because the business is investing in growth) or where the business model produces predictable recurring revenue. Typical: 0.5x to 1.5x annual revenue for established service businesses; higher for SaaS.

Asset-based (used for asset-heavy or distressed businesses). Net asset value plus a goodwill premium. Most relevant for businesses with significant property, machinery, stock, or land relative to their operating profit.

What "adjusted profit" actually means

Owner-managed businesses rarely show their true profit in the published accounts. Common adjustments (in your favour) include:

• Owner salary above market rate
• Family members on the payroll who are not full-time
• Personal expenses run through the business (vehicles, phones, holidays disguised as conferences)
• One-off legal, professional, or rebrand costs
• Non-recurring bad debt or stock write-offs

Buyers will accept these adjustments when they are documented and credible. Inflated or fanciful addbacks erode trust quickly.

Typical UK sector multiples

A rough orientation for owner-managed UK SMEs:

• Independent retail: 1.5x to 3x SDE
• Hospitality (pubs, restaurants): 1.5x to 3x SDE, plus property element if freehold
• Service and trades: 1.5x to 3x SDE (higher with recurring contracts)
• Online and digital: 2x to 5x SDE for ecommerce; 2.5x to 5x ARR for SaaS
• Professional services: 0.8x to 1.3x recurring fees for accountancy; 3x to 6x EBITDA for larger firms
• Manufacturing and wholesale: 3x to 5x EBITDA
• Property services: 4x to 7x EBITDA
• Care and education: 6x to 9x EBITDA for care homes; 4x to 7x for nurseries
• Leisure: 2x to 4x EBITDA for gyms; 1.5x to 3x SDE for salons
• Agriculture: typically asset-based plus 4x to 7x EBITDA on the operating concern

These are starting points, not promises. Your specific multiple depends on your trend, your concentration, and your owner-dependence.

What pushes the multiple up

The single biggest lever is transferability: can the business run without you? After that, in rough order: revenue growth trend, customer diversification, recurring versus project revenue, documented systems, key staff retention, and any moat (IP, brand, contracts, location).

What pushes the multiple down

Owner-dependence (you are the business), customer concentration (top three customers represent more than 40% of revenue), declining trend, ageing assets requiring capex, regulatory uncertainty, unresolved disputes or claims, and weak compliance position.

What to do with the number

Treat the valuation as a credible asking price range, not a fixed price. Most UK SME deals close at 70-95% of the asking price after negotiation. Price slightly above what you would actually accept, but not so far above that serious buyers walk away on principle.