Valuation · 9 min read
How to Value a Business Before Selling It
An asking price you cannot justify costs you either the buyer or the money. This guide sets out how sellers build a defensible valuation range before going to market, and what evidence buyers will demand for it.
Step 1
Establish sustainable earnings
Valuation begins with the profit a new owner could reasonably expect to repeat, not the profit shown in the accounts. That means normalising EBITDA: adding back one-off costs and personal expenses, removing exceptional income, and correcting owner remuneration to a market salary for the role.
- Add back non-recurring legal, restructuring or relocation costs.
- Add back personal expenses routed through the business.
- Adjust promoter salary to a market rate for the equivalent role.
- Remove exceptional income such as asset sales, subsidies or forex gains.
- Restate related-party revenue and costs to arm's-length terms.
- Confirm the adjusted figure reconciles with bank and tax records.
Step 2
Apply an evidence-based multiple
What sets the multiple
Sector, growth rate, revenue predictability, customer concentration, margin quality and how much of the business depends on the current owner.
Where evidence comes from
Comparable listed companies and, more usefully for private businesses, recent transactions of similar size in the same sector and geography.
Why size matters
Larger, more institutionalised businesses attract higher multiples than owner-operated ones of the same profitability, because the earnings transfer more reliably.
One method is never enough
Step 3
Bridge from enterprise value to what you receive
- Enterprise value equals normalised EBITDA multiplied by the selected multiple.
- Deduct total debt, including leases, director loans and guarantees called.
- Add surplus cash and non-operating assets not required by the business.
- Adjust for any shortfall against a normal level of working capital.
- Deduct quantified diligence findings, statutory arrears and known exposures.
- Deduct transaction costs and, where relevant, tax on the sale proceeds.
- The result is the equity value: what actually reaches the shareholders.
Step 4
Raise the number before you go to market
The gap between an average price and a strong one is usually built in the twelve months before a sale, not in the negotiation.
Reduce concentration
Broaden the customer base so no single client threatens the earnings a buyer is paying for.
Convert to recurring revenue
Contracts, retainers and renewals are valued far above one-off project income.
Remove owner dependence
Document processes and move relationships to the team so value transfers with the shares.
Clean up compliance
Audited statements that reconcile with tax filings shorten diligence and protect the top of your range.
Improve cash conversion
Tighter debtor and inventory control turns accounting profit into cash a buyer can see.
Prepare the data room
Assemble contracts, filings and schedules early so findings do not arrive as surprises.
FAQ
Seller valuation questions
How much is my company worth?+
As a first indication, take normalised annual EBITDA, apply a multiple appropriate to your sector and risk profile, then subtract net debt. A professional valuation refines this with comparables, cash-flow analysis and adjustments specific to your business.
Should I get a valuation before listing the business for sale?+
Yes. Entering the market without one means the first serious buyer sets the anchor. A valuation lets you set the range and defend it with evidence.
Will I receive the valuation figure?+
Not necessarily. A valuation is a professional opinion at a date. The final price depends on negotiation, competition among buyers, deal structure and what due diligence reveals.
How long is a valuation valid?+
Treat it as current for six to twelve months, and refresh it after any material change in earnings, contracts, debt or market conditions.
Know your number before a buyer names theirs.
Share your sector, revenue range and timeline for an initial valuation conversation.