Business Valuation Guide

Profit multiple (EBITDA) valuation

The most common method for profitable trading businesses is a multiple of adjusted earnings, usually EBITDA, which stands for earnings before interest, tax, depreciation and amortisation. Before applying a multiple, a valuer adds back one off and owner specific costs, things like your own above market salary or personal expenses run through the business, to reveal the true underlying profit a new owner would enjoy.

That adjusted profit is then multiplied by a figure appropriate to your sector. A small business run largely by its owner might sell for two to four times earnings, while a larger, faster growing business, or one with recurring contracted revenue, can command a considerably higher multiple. The multiple is really a measure of how confident a buyer feels about those profits continuing.

Asset based valuation

For asset heavy businesses such as property, plant or stock based operations, the value of the underlying assets, less any liabilities, can be the starting point rather than profit. This approach is also used where a business is loss making and worth more broken up than kept running as a going concern.

Asset based figures tend to set a floor rather than a ceiling. A profitable business is almost always worth more as a trading concern than the sum of its parts, which is why valuing purely on assets often undersells a healthy company.

Entry cost and market valuation

An entry cost valuation asks what it would cost a buyer to build your business from scratch, including the time, the staff, the customers and the reputation. A market valuation looks instead at what genuinely comparable businesses have actually changed hands for. The most credible valuations triangulate several methods rather than leaning on any single one.

This is where real market knowledge counts. Knowing what businesses like yours have recently sold for, not what owners hoped they would sell for, is what turns a valuation from a guess into a number you can defend.

What drives the multiple up

• Consistent, growing profits over several years
• Recurring, contracted or repeat revenue
• A strong management team and low reliance on the owner
• A diverse customer base with no single dominant client
• Clear growth potential a buyer can realistically unlock

What drags the value down

• Declining or erratic profits
• Heavy reliance on the owner or one large customer
• Messy accounts or unresolved legal and tax issues
• Outdated systems, equipment or premises
• A tired owner with no plan for the handover

Getting a valuation you can trust

Online calculators give a rough idea, but they cannot weigh the things that genuinely move your number: the quality of your earnings, the strength of your team, or the appetite in your sector right now. They average everyone, and your business is not average.

agentlocal provides a free, confidential valuation carried out by a dedicated agent who knows your market and benchmarks against real, recent sales. It is the same figure we would take to funded buyers under our fully managed sale, so you start with a number that holds up under scrutiny.