Business valuation explained (UK)
Valuation is an informed opinion of what a willing buyer might pay, not a single “correct” number. This page explains the earnings approaches most private UK deals use, the difference between selling shares and selling assets, what tends to move the multiple, and why a professional valuation still matters.
Earnings multiples — the usual private-company approach
For many trading businesses, buyers start from maintainable earnings and apply a multiple. Smaller owner-managed businesses are often looked at on a seller’s discretionary earnings / adjusted profit basis (similar idea to US SDE). Larger deals more often use EBITDA (earnings before interest, tax, depreciation and amortisation) after normalising one-offs and owner costs.
The multiple is not universal. It depends on size, sector, growth, customer concentration, recurring revenue, margins, and how dependent the business is on the owner. Published “average multiples” in headlines are rarely a reliable guide for your specific company — treat any range you see online as illustrative only.
Asset sale vs share sale
In a share sale, the buyer acquires the company (and its history, contracts and liabilities, subject to warranties and disclosure). In an asset sale, the buyer picks specific assets and may leave some liabilities behind; contracts and employees often need fresh consent or TUPE analysis.
Sellers often prefer a share sale for tax and simplicity; buyers sometimes prefer assets for risk control. The choice affects price, tax and the legal work — it should be discussed early with your solicitor and tax adviser.
What drives the multiple
Higher multiples usually go with: larger, more diversified earnings; recurring or contracted revenue; strong margins; low key-person risk; clean financials; and a credible growth story. Lower multiples usually follow: heavy owner dependence, lumpy customers, weak reporting, declining markets, messy legal or tax issues, or thin transferable systems. Working capital needs and net debt also change the equity cheque a buyer writes even when the enterprise value looks similar.
Caution — get a professional valuation
Real figures vary widely by sector, size and deal terms. Online calculators and rule-of-thumb multiples are not a substitute for a valuation grounded in your accounts and market evidence. Use an accountant, independent valuer or experienced broker/M&A adviser for a figure you can defend in negotiations.
Tax on exit can change the net proceeds meaningfully. Business Asset Disposal Relief may apply to some share disposals if conditions are met — rules change, so get professional tax advice for your situation. Source: GOV.UK: Business Asset Disposal Relief eligibility