Kishen Patel
Kishen is the founder of Consult EFC and a specialist in corporate finance for UK owner-managed businesses. Leveraging his background in Investment Banking and his status as an ICAEW Chartered Accountant, he helps SME owners strip away the complexity of valuations to reveal the true, defendable value of their companies—ensuring they are perfectly positioned for investment, buy-outs, or exits.
If you run a UK limited company and someone offers to buy in, buy you out, or invest, the first question is usually the same: “So what’s the business worth?” It sounds like it should have a neat answer, like a house price. It rarely does.
Small Business Valuations are best thought of as a sensible range, based on what a buyer believes they can safely take out of the business in future, and how risky it feels to rely on that. Two buyers can look at the same accounts and still land on different numbers, because they’ll weigh risk, growth, and effort differently.
This guide breaks down the main valuation methods you’ll see, what actually moves value up or down in 2026, and how to get “valuation-ready” without dressing up the figures. If you want help making sense of your numbers and improving them in the real world, Consult EFC supports owners with clean accounts, forecasting, and exit preparation.
Free Valuation Strategy Audit
Is your business “exit-ready” or just profitable? Spend 30 minutes with Kish Patel (ICAEW Chartered Accountant) to identify the hidden value drivers and risk factors in your company before you talk to a buyer.
Specifically for owners of UK-based limited companies. A confidential strategy session to turn your financial data into a powerful exit narrative.
The three valuation methods you’ll see most, and when each one makes sense
Most serious buyers don’t use one method and stop. They’ll usually work from two or three angles, then sanity-check the answers against each other. If one method gives a wildly higher figure, they’ll ask why, and the burden is on the seller to prove it.
Here’s a simple way to frame the three most common approaches:
| Valuation Method | Best For | Primary Focus |
|---|---|---|
| Earnings Multiple (EBITDA) | Profitable, steady SMEs | Repeatable operating profit (Normalised) |
| Revenue Multiple | High-growth, low-profit firms | Turnover quality and growth momentum |
| Asset-Based / DCF | Asset-heavy or forecast-led stories | Balance sheet strength or future cash flows |
In the UK SME market, profitable businesses often trade on an earnings multiple. Broadly, many fall somewhere around 3x to 8x EBITDA, depending on the quality of the business and the risk a buyer sees. The method matters, but the story behind the numbers matters more.
Earnings multiple (EBITDA): the go-to method for profitable SMEs
EBITDA is a rough proxy for operating cash earnings, before funding and tax choices muddy the picture. For owner-managed SMEs, the key is normalised EBITDA, which means stripping out costs that won’t apply to a new owner, and removing one-offs that distort the year.
A simple example: your accounts show £85k profit, but that includes a one-off legal bill of £10k and £5k of personal expenses run through the business. Normalised EBITDA might be closer to £100k.
If a buyer applies a multiple of 4 to 6, you’re looking at:
- £100k x 4 = £400k
- £100k x 6 = £600k
What shifts that multiple? Risk and ease. Buyers usually pay more when growth is believable, customers are spread, the team can run things without you, and contracts and systems reduce surprises. This approach suits stable firms with consistent profit and decent records.
Revenue multiple: useful when profits are low, but growth is real
Revenue multiples show up when profits are low by design, or temporarily squeezed because the business is investing to grow. You’ll see them more in subscription models, tech-enabled services, and early-stage firms where the buyer is paying for momentum and future margin.
Example: a business doing £1.0m turnover might attract 0.8x to 1.2x revenue in some cases, giving a headline range of £800k to £1.2m. For small SaaS businesses, buyers often talk in annual recurring revenue (ARR) multiples, with many smaller firms clustering around 3x to 6x ARR, and stronger outliers going higher when metrics are exceptional.
Revenue doesn’t get a free pass. Buyers still test gross margin, customer churn, and the path to profit. If the model can’t produce dependable profit later, a revenue multiple quickly shrinks, or disappears.
Asset-based and DCF: the bookends that set the floor and test the story
Asset-based valuations are common for asset-heavy businesses, think property, plant, equipment, or stock. It’s often used as a “floor” value: assets at a realistic value, minus debts and liabilities. If you have £300k of kit and stock, and £180k of debt, an asset view might suggest £120k before considering goodwill.
Discounted cash flow (DCF) goes the other way. It tests the value of future cash the business could produce, based on forecasts, then discounts it for risk. DCF can be useful when your plan is credible and supported by evidence, but it’s sensitive. Small tweaks to growth, margin, or risk rates can swing the answer sharply. Clean forecasts and proof points (orders, renewals, pipeline quality) make DCF far more convincing.
What really moves your valuation up or down
A valuation is a judgement about risk. In 2026, buyers are often more data-led and more thorough. They expect better reporting, tighter explanations, and fewer gaps. The businesses that do best are not just bigger, they’re easier to trust.
Think of value like a bucket with holes. You can pour more sales in, but if the holes are large (customer concentration, messy accounts, owner dependency), the bucket still doesn’t fill.
Profits you can trust, not just bigger sales
Buyers pay for repeatable profit, not a good year that might not happen again. They’ll look at margins over time, pricing discipline, and whether your overheads make sense for the revenue level.
“Quality of earnings” comes up a lot in due diligence. It means your profit number holds up once a buyer removes one-offs and checks the detail. Lumpy profit tends to lower value because it increases the chance of a nasty surprise after completion.
Working capital matters too, even if it feels dull. If you need more stock and more debtor days every time sales rise, the buyer may need to inject cash just to keep trading. That usually reduces what they’ll pay for shares, because part of the deal becomes “buying” your future cash tie-up.
Customer risk, recurring income, and contract strength
A buyer will ask, “What happens if your biggest customer leaves?” If one client accounts for 40 percent of turnover, the business can feel like a single fragile relationship, even if service is strong.
Recurring income changes the mood completely. Subscriptions, retainers, repeat orders, and long-term agreements reduce risk and make forecasting easier. Buyers often like to see:
- The top customer below 20 percent of revenue (not a rule, but a comfort point)
- Signed agreements with clear terms and renewal mechanics
- Stable retention and low churn, explained plainly
A business with predictable renewal cycles and documented customer relationships often attracts a higher multiple than a similar firm doing project work with the same headline profit.
Owner dependence, team strength, and systems that scale
If the business only works because you personally quote every job, manage every client, and solve every problem, a buyer has to “buy you” as well as the company. That increases risk and usually lowers the multiple.
Owner independence isn’t about being absent. It’s about having a capable layer beneath you and clear ways of working. Buyers look for a team that can keep delivery stable, a process for pricing, supplier terms that don’t rely on your personal relationships, and basic compliance handled routinely.
Simple systems help too: documented steps for onboarding clients, approval limits, and clear KPIs. In 2026, stronger governance and better day-to-day reporting tends to stand out, because buyers are less willing to accept “it’s in my head” as an answer.
How to get a valuation-ready business, without gaming the numbers
You don’t need to perform tricks to improve valuation. The best approach is ethical and practical: improve the business, then report it clearly. That’s also how you reduce deal stress, because you’re not scrambling to explain surprises at the worst moment.
If you’re not sure where to start, Consult EFC often helps owners get their accounts, forecasts, and exit prep into a shape that stands up to scrutiny. The goal is to make the business easier to understand, easier to run, and easier to buy.
Clean up your financials: normalise profit and back it with evidence
Most SMEs can present a stronger, clearer profit story, but only if it’s true and provable. Buyers will ask for the workings behind adjustments, so keep it simple, consistent, and evidenced.
Common add-backs (when supported) include one-off legal fees, non-recurring repairs, and genuine personal costs run through the business. What usually doesn’t fly is adding back normal wages for real roles, routine marketing that drives sales, or recurring “one-offs” that happen every year.
Aim for a clean baseline, often the last three years, with consistent management accounts, clear balance sheet control, and a tidy schedule of adjustments. Good records reduce perceived risk, and perceived risk is what pulls multiples down.
Build a simple growth plan and stress-test it
A strong plan doesn’t need fancy spreadsheets. It needs clear drivers and believable assumptions. At a minimum, map sales, gross margin, overheads, and cash. Tie growth to real actions, such as capacity, hires, pricing, channels, and conversion rates.
Then add a downside case. What if you lose one client, or supplier costs rise, or you need to pay more to keep good staff? UK SMEs in 2026 still face cost pressure in areas like wages, energy, and premises costs, so buyers will test whether your plan can cope without collapsing margins.
A stress-tested forecast turns “hope” into a business case. It also helps you manage the company better now, not just when you want to sell.
Avoid the mistakes that derail deals and push buyers to discount
Most discounts happen for predictable reasons. Buyers don’t mind problems, they mind surprises. The quickest way to reduce value is to let issues emerge late, with weak explanations.
Common deal breakers include using only one method and guessing a multiple, hiding bad news until due diligence, weak or missing contracts, messy tax and VAT positions, under-funded capex needs, and poor stock control. Each one increases the buyer’s sense of risk and hassle. When that happens, they protect themselves with a lower multiple, tighter terms, or both.
If you fix issues early, you stay in control of the narrative. You also avoid the scenario where a buyer “finds” the problem and uses it as a negotiating tool.
How Consult EFC can help
Small business valuations aren’t magic, and they aren’t fixed. They’re a judgement about future cash and risk, backed by evidence.
- Valuations are a range, not a single perfect number.
- The right method depends on your model, profit profile, and assets.
- Buyers pay more for repeatable profit and lower uncertainty.
- Recurring income, strong contracts, and low customer concentration lift value.
- Owner-independent operations and clean reporting often raise the multiple.
- Preparation improves both price and deal certainty.
If you’re planning an exit, a buy-in, or investment, a valuation review and value-improvement plan with Consult EFC can help you understand what drives your number, and what to fix first. The best time to make the business easier to buy is while you still own it.
Free Valuation Strategy Audit
Is your business “exit-ready” or just profitable? Spend 30 minutes with Kish Patel (ICAEW Chartered Accountant) to identify the hidden value drivers and risk factors in your company before you talk to a buyer.
Specifically for owners of UK-based limited companies. A confidential strategy session to turn your financial data into a powerful exit narrative.
