If someone asked you right now what your business is worth — could you answer that?
Most business owners can’t. And the ones who think they can are usually wrong.
Here’s how businesses are actually valued, and why the number matters more than most owners realise.
The most common mistake
Most owners come up with a figure based on what they need. They think about the mortgage they want to pay off, the retirement they’ve planned, the lifestyle they want to fund — and work backwards from there.
That’s understandable. But it’s not how buyers think.
A buyer doesn’t care what you need. They care what the business can produce after you’ve left it.
How businesses are actually valued
The most common method for owner-managed businesses is a multiple of earnings. A buyer looks at the net profit the business generates and multiplies it by a number — typically somewhere between two and five for most small to medium businesses in the UK.
So if your business makes £200,000 profit a year and the multiple is three, the business is worth around £600,000. Simple in theory. But the devil is in the detail.
What affects the multiple
Not all businesses attract the same multiple. The things that push it up include recurring revenue — customers who come back every month without you having to chase them — a strong management team that doesn’t depend on you, a well-spread customer base, and clean, clear accounts that a buyer can trust.
The things that pull the multiple down are just as predictable: owner dependency, customer concentration, messy financials, and undocumented processes. These four issues come up in almost every business sale and almost always result in a lower offer — or no offer at all.
Most of them are fixable. But only if you start working on them before you go to market.
The gap between expectation and reality
The most common problem in business sales is the gap between what an owner thinks their business is worth and what a serious buyer will actually pay. That gap can be significant — and it almost always comes down to one of the issues above.
The good news is that none of these are permanent problems. With enough lead time — typically twelve to twenty-four months — most business owners can meaningfully improve their valuation before they go to market.
If you want to know what your business might actually be worth — not what you hope it’s worth, but what a serious buyer would pay — get in touch with us at Hazel Property Group. We’ll have an honest conversation, no pressure and no obligation.
www.hazelpropertygroup.co.uk
