The Exit Toolkit · Sheet 19 of 20
How businesses are really valued
Multiples, methods and what actually decides the price
Net assets
Assets minus liabilities. Ultra-simple, but it usually pays you nothing for goodwill, your customer base or future potential.
A multiple of earnings
The most common method for small deals: a multiple applied to EBITDA (earnings before interest, tax, depreciation and amortisation), usually the current or most recent year. The multiple itself is driven by recent transactions and appetite rather than science.
Cash flow methods
Discounted cash flow and similar models value the business on projected future cash. Powerful, but they need expert input and credible forecasts.
The intangibles
A licence, a hot product, key clients, or your experienced team can be worth more to the right buyer than any formula suggests.
The buyer matters
Your most significant competitor may pay more than a 'cold' buyer, because the business is worth more to them. Strategic value beats theoretical value.
There is no 'asking price'
In most advised sales the business is not put on the market at a price. Buyers come with offers, and the real value is where a willing buyer and willing seller meet.
Bottom line
Serious sellers get expert opinion from accountants or deal advisors before negotiating. But hold every valuation lightly: it is a starting position, not a fact.
General information only, not legal advice. Steven Mather Solicitor is a trading name of Kesters Nook Limited; legal work is carried out through Nexa Law Limited, authorised and regulated by the SRA (number 633024).