Kishen Patel
Kishen is an ICAEW Chartered Accountant and Corporate Finance Adviser. He founded Consult EFC to support UK SME owners through the complexities of business valuations. By applying elite financial rigour, he identifies and closes the valuation gap to ensure founders secure the exit price their hard work deserves.
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You’ve probably had this moment. You’ve got a number in your head, maybe built from years of sacrifice, late nights, and the “we’ll take it out later” mindset. Then a buyer, lender, or investor comes back with a figure that feels like it’s for a different business.
That difference is the valuation gap. In plain English, it’s the gap between what you think your company is worth and what the market will actually pay.
In the UK in February 2026, buyers are active, but they’re selective. Funding costs still shape deals, due diligence is tougher, and lenders want cleaner evidence of cash generation. Strong businesses still command good multiples, but only when the risk is low and the numbers hold up. This article explains why the gap happens and what you can do, starting now, to close it.
Close Your Valuation Gap
Is your expected exit value based on market reality or hearsay? Spend 30 minutes with Kish Patel to pressure-test your multiple and identify the structural fixes required to maximise your sale price.
Confidential, expert-led strategy session for UK business owners. We prioritise high-value outcomes and deal certainty.
Why Business Valuations in 2026 often land below what owners expect
Most overestimation isn’t arrogance. It’s perspective. Owners live inside the business, buyers stand outside it. Owners see effort and potential. Buyers see risk, transferability, and cash they can rely on.
In 2026, many UK SMEs still trade hands in a broad range of 3× to 8× annual profit (often discussed as EBITDA multiples). Founder-led firms commonly sit around 4× to 5.5×, unless the business is clearly run by a team and has dependable, repeatable income. Where people get caught out is thinking their business sits at the top end because it “should”.
Small changes in profit and multiple can swing value dramatically. Here’s a simple illustration:
| Maintainable EBITDA | Multiple | Indicative enterprise value |
|---|---|---|
| £300,000 | 6.0× | £1,800,000 |
| £300,000 | 4.5× | £1,350,000 |
| £240,000 | 4.5× | £1,080,000 |
That’s a £720,000 spread without changing the story much, just the buyer’s confidence and what they believe is maintainable.
Owners price the business like a reward, buyers price it like a risk
Owners often anchor on a “fair” outcome. “I built this from nothing” is true, but it doesn’t set the market price. The sale price is set by what a buyer thinks they can take over and run, and how likely the future profit is to show up on time.
Buyers are paid to worry. They ask questions like: What happens if a key customer leaves? What if the top salesperson resigns? What if the founder steps back? They also look for downside protection, like earn-outs, holdbacks, and lower headline multiples if the risk is high.
There’s also a quiet trap in using last year’s best result as the baseline. A strong year can be real progress, or it can be timing, a one-off contract, or underinvestment (skipping hires, delaying system upgrades, sweating the founder harder). Buyers don’t dislike ambition, they just don’t pay upfront for hope.
Past hard work built the platform. It doesn’t automatically increase the sale price unless it shows up as maintainable cash profit with manageable risk.
The biggest valuation killers: founder reliance, messy numbers, and one-off profit
When Business Valuations fall short, it’s usually because buyers see “fragile profit”. The profit exists, but it depends on conditions that won’t survive the handover.
Three issues widen the valuation gap fast:
Founder reliance. If you hold the key relationships, do most of the selling, or still solve the hard delivery problems, the buyer prices in the cost and risk of replacing you. That can mean a lower multiple, or it can mean deal structures that keep you tied in.
Messy numbers. Inconsistent monthly management accounts, unclear add-backs, and end-of-year surprises create doubt. Doubt reduces multiples. It also drags deals into longer due diligence, which increases the odds of price chips.
One-off profit. Buyers care about maintainable EBITDA, not “this year was great”. Project spikes, lumpy work, and unusual margin wins get discounted unless you can show a repeatable engine behind them.
Other common drags include customer concentration (one client worth 35% of sales), deferred maintenance in systems, weak middle management, and unclear working capital patterns. Each one either reduces the multiple, increases earn-out pressure, or leads to holdbacks “just in case”.
What the market is paying for in the UK right now (and what it discounts)
A useful way to think about 2026 is this: buyers still pay for good businesses, but they pay extra for certainty.
Mid-market deals often land around 4× to 6× EBITDA in many sectors. Premiums go to firms with low risk and clear scalability. Discounts hit founder-led firms where profit can’t be separated from the owner, or where the numbers don’t stand up to scrutiny.
Here’s a simple buyer-style checklist. The bullets are short, but the “why” is the whole point:
- Recurring or contracted revenue: Predictable income reduces the fear of a post-sale dip.
- Diverse customers: Concentration risk can cut value quickly.
- Clean, timely accounts: If the buyer can’t trust the numbers, they can’t trust the price.
- Strong gross margins: Margin control signals pricing power and disciplined delivery.
- A team that runs the work: Transferability often matters more than growth claims.
- Stable cash and working capital: Buyers don’t want to fund a cash hole after completion.
None of this is theoretical. In 2026, with lenders and buyers still cautious, evidence matters more than optimism.
Multiples aren’t random, they track confidence in future cash
EBITDA multiples can sound like a pub rule. They’re not. A multiple is a shortcut for risk and future cash generation.
Two firms can both show £400,000 EBITDA. One sells for 6×, the other for 4×, because one looks dependable and transferable, and the other looks founder-dependent and fragile.
Higher interest rates and cautious lending don’t just affect mortgages, they affect deal maths. When debt is more expensive, buyers need stronger proof that cash will cover repayments. That puts pressure on vague forecasts and “trust me” adjustments.
A quick worked example shows how normalising profit changes the number:
- Reported EBITDA (last 12 months): £500,000
- Less one-off project margin spike unlikely to repeat: £80,000
- Add back a genuine one-off legal cost with invoices: £20,000
- Maintainable EBITDA: £440,000
Now apply a sensible multiple range:
- £440,000 × 5.0 = £2.2m enterprise value
- £440,000 × 4.0 = £1.76m enterprise value
If the owner expected “six times half a million”, they had £3m in mind. The valuation gap is not small, and it’s not personal. It’s the market paying for what it can rely on.
Signals that can lift value: recurring revenue, strong margins, and a business that runs without you
Buyers pay more when they see a business that behaves well under new ownership. In practice, they’ll ask for proof.
Recurring revenue is the obvious one. Subscriptions, retainers, contracted services, and repeat ordering patterns reduce uncertainty. Buyers will look for churn, renewals, contract terms, and how pricing increases have landed.
Margins matter in 2026 because costs are still sticky in many sectors. A business that can protect gross margin, explain its pricing, and show delivery discipline tends to attract stronger multiples. Buyers like simple margin stories: clear job costing, consistent pricing, and low rework.
Transferability is the premium driver many founders underestimate. A buyer will ask: who sells, who delivers, who manages key accounts, and what happens if the founder steps back? “Good” looks like documented processes, a capable second tier, and a track record of the owner taking real holidays without revenue dropping off a cliff.
Clear growth is still valuable, but it has to be believable. A tidy pipeline, good conversion rates, and evidence that new hires can generate profit are worth more than a big slide deck.
How to close the valuation gap before you exit
Closing the valuation gap isn’t about chasing a bigger headline. It’s about building a defendable number with fewer deal surprises, better terms, and a smoother due diligence process.
Think in a 6 to 18 month window. That’s long enough to change what the business looks like in the buyer’s hands, not just how it’s described.
At Consult EFC, the focus is practical: get the numbers sale-ready, shape the value story around evidence, and improve exit readiness so buyers can say “yes” with fewer conditions.
Build a defendable EBITDA and a clear value story
Many SME accounts are prepared mainly for tax and compliance. That’s fine until you want to sell. Buyers need accounts that explain performance, not just report it once a year.
Start with monthly management accounts that reconcile to the statutory numbers. Consistency builds trust. Then move to normalised EBITDA, with add-backs that are sensible and evidenced. If you can’t prove an add-back quickly, assume the buyer won’t accept it.
Common clean-ups that help:
Owner perks separated clearly (cars, travel, family on payroll, non-business costs). Not because they’re “wrong”, but because the buyer wants to see the real operating profit.
Consistent revenue recognition. If revenue moves around based on invoicing timing, it creates doubt. Buyers hate grey areas.
Segment reporting if you have multiple lines of business. If one line is strong and another is weak, blending them can drag the multiple down. Clarity lets a buyer value what’s actually performing.
Then back the story with metrics. Keep it simple: retention and churn (where relevant), customer concentration, gross margin by service line, pipeline value, conversion rate, average deal size, and utilisation if you sell time. A buyer isn’t impressed by the metric list, they’re reassured by the pattern and the discipline.
De-risk the business so buyers pay up (team, customers, systems, and contracts)
If you only do one thing to improve Business Valuations, reduce the risks that make buyers ask for earn-outs and holdbacks.
Here’s a punchy checklist of what moves the needle in real deals:
- Reduce reliance on a single customer by building a wider base and protecting key accounts with stronger relationships across your team.
- Lock in key staff with clear roles, sensible incentives, and a plan for what happens if someone leaves.
- Document how work is sold, delivered, and billed so performance doesn’t live in people’s heads.
- Delegate sales and delivery so the business can win and fulfil without the founder in every meeting.
- Tighten contract terms, renewals, and pricing increase clauses so revenue is easier to forecast.
- Improve working capital discipline, especially invoicing speed, payment terms, and stock control where relevant.
- Tidy supplier risk and make sure key inputs have alternatives.
- Confirm IP ownership (where relevant), including contractor agreements, code ownership, and brand assets.
A simple way to prioritise is to tackle the top three risks that would stop a buyer lending against the deal. If a bank wouldn’t fund it, a buyer will price it like cash is at risk.
A simple way to sanity-check your expected exit value in 2026
Hearsay multiples are dangerous. “My mate sold for seven times” isn’t a valuation method. It’s a story with missing details, like sector, size, risk, working capital, and deal structure.
A better approach is to aim for a valuation range, backed by your own numbers, and pressure-tested for risk. Even if you plan to exit later, this exercise highlights where value leaks out.
Before you start, gather a few basics: last 12 months profit and loss, a balance sheet, details of any unusual costs, a customer list with revenue by customer, and a rough view of your pipeline. You’re not trying to be perfect, you’re trying to be honest.
The 30-minute valuation gap check you can do this week
The 30-Minute Valuation Gap Check
Complete these 5 steps to find your “Real World” valuation range today:
Prompts that reveal risk fast:
- If you took four weeks off, what breaks first?
- How many customers make up 50% of sales?
- Who owns the top five relationships, you or the team?
- How often do your management accounts change after month-end?
When to get a professional valuation (and what good looks like)
A proper valuation is worth getting when you’re making decisions that are hard to reverse. Common triggers include planning an exit in 1 to 3 years, raising investment, refinancing, bringing in a management team, or working through a partner buyout.
A good output isn’t a single “magic number”. It should include a valuation range, the key drivers behind that range, and the deal-structure risks that could reduce what you actually receive. It should also give you a focused action plan to increase certainty, not just ambition.
Consult EFC supports owners through this process, from normalising EBITDA and preparing sale-ready reporting, to improving exit readiness so buyers can complete with confidence.
How Consult EFC can help
The 2026 valuation gap exists because owners often price effort, while buyers price risk and proof of future cash. The fix isn’t smoke and mirrors. It’s cleaner numbers, less founder reliance, and a business that can perform without you in the middle of everything.
If you want a practical next step, start with the 30-minute check, then write down the top three risks you’ll fix in the next quarter. If you’d like a sharper view of your Business Valuations range and what’s holding it back, book a valuation gap review and exit readiness plan with Consult EFC.
Close Your Valuation Gap
Is your expected exit value based on market reality or hearsay? Spend 30 minutes with Kish Patel to pressure-test your multiple and identify the structural fixes required to maximise your sale price.
Confidential, expert-led strategy session for UK business owners. We prioritise high-value outcomes and deal certainty.
