What is your UK business actually worth? Most owners get this wrong.

Ask a business owner what their company is worth and most give you an answer derived from one of three flawed methods: what they think they deserve after years of work, what their turnover is, or what a friend got for theirs in a different sector two years ago. None of these produce a defensible valuation. And the gap between what an owner believes their business is worth and what a buyer will actually pay is often the most expensive conversation any entrepreneur ever has.

The number buyers actually care about

Buyers of UK SMEs primarily value businesses on a multiple of EBITDA — Earnings Before Interest, Tax, Depreciation and Amortisation. Not revenue. Not what you have invested. Not what you need for retirement. EBITDA measures the cash the business generates from operations before financing and accounting decisions are applied. It is the closest proxy for “what does this business actually produce?”

Current multiples for UK SMEs: 3–5× EBITDA for most sectors. 4–8× for recurring-revenue technology businesses. 2–4× for retail and hospitality. A business generating £150,000 of EBITDA in a distribution sector is worth approximately £450,000–750,000 depending on the quality of those earnings. Quality matters as much as quantity.

What destroys value instantly

Three things compress a business valuation faster than anything else. Key-person dependency: if you leave and the business cannot function, it is not a business, it is a job. Customer concentration: one customer representing more than 20% of revenue makes every buyer nervous about losing that contract post-sale. Declining margins: a business with profits falling in the most recent 12–24 months will be scrutinised intensely and valued on the forward-looking conservative case, not the historical peak.

The 12 months that matter most

Valuation is disproportionately influenced by the most recent year. Every £1 of EBITDA improvement in the year before sale is worth 4–5× £1 in enterprise value. A £20,000 gross margin improvement achieved 6 months before going to market adds £80,000–100,000 to the sale price. This is not financial engineering; it is the logical consequence of how buyers value sustainable earnings. The lesson: start optimising your numbers 12–18 months before you intend to sell, not 12–18 months after you have started talking to advisers.

The number most owners miss

Seller’s Discretionary Earnings (SDE) is the metric used for owner-managed businesses. It adds back the owner’s salary and personal expenses (mobile phone, vehicle, pension paid through the company) to EBITDA to show what the business would earn under any owner. A business generating £80,000 EBITDA where the owner draws a £60,000 salary has SDE of approximately £140,000. Valued at 3.5× SDE: £490,000 — significantly more than the £280,000 implied by the EBITDA multiple alone. If you are an owner-manager, make sure your adviser is using SDE, not EBITDA.