What is your business really worth?

A buyer is not buying what your business has achieved so far, but the income it can generate in the future. That is why the starting point is almost always normalised earnings: EBITDA adjusted for one-off items and owner-specific circumstances.

The earnings multiple approach

Valuation using an earnings multiple starts with normalised earnings. We assess the appropriate multiple based on the business's characteristics and comparable transactions. In specialist markets, it is particularly important not to start with a generic figure. Among other things, we examine:

• Reliance on the owner. If the business stops without you, the multiple falls. If a capable management team is in place, it rises.
• Customer concentration. If more than a third of revenue comes from one customer, a buyer prices in that risk.
• Recurring revenue. Contracted, recurring revenue is worth more than project-based revenue.
• The quality of financial records. Clear accounts that can be reviewed quickly can themselves support a higher price.

What the multiple does not capture

Assets, property, stock and net cash may be accounted for in addition to, or within, the value derived from the multiple. This varies from deal to deal, which is exactly why a simple calculator is not enough. In specialist sectors with few comparable transactions, value depends to a large extent on how much market access is worth to a particular buyer.