BusinessSold guide · 8 minute read

How to value a small business

A practical introduction to maintainable earnings, multiples, assets and the factors that influence a buyer’s offer.

Start with maintainable earnings

Historic profit is only a starting point. Recast the accounts to remove genuinely exceptional costs, personal expenditure and owner remuneration that would change under new ownership. Keep a clear schedule for every adjustment so a buyer can test it.

Choose the right earnings measure

Smaller owner-operated businesses are often discussed using seller’s discretionary earnings or adjusted net profit. Larger managed businesses may be valued using EBITDA. Use the measure buyers in your sector recognise and apply it consistently.

Use comparable evidence carefully

Multiples vary by sector, size, recurring revenue, customer concentration, growth and how dependent the business is on its owner. A headline multiple from a different market segment is not reliable evidence by itself.

Account for assets and debt

Clarify whether surplus cash, debt, freehold property, stock and working capital are included. Enterprise value and the amount ultimately paid to shareholders are not always the same figure.

Prepare a defensible range

A sensible valuation is usually a range supported by assumptions, not a single guaranteed number. Test downside and upside cases, then compare the result with buyer returns and likely funding constraints.