Factors To Consider When Setting The Asking Price Of Your Business

Most owner-managed UK businesses sell for between 1 and 5 times adjusted net profit. Small leasehold retail and hospitality sit at the low end. Contracted service firms and small technology businesses sit at the top. No official body publishes averages, so treat any precise figure with caution. Your multiple depends on risk, not on your sector alone.

Start with adjusted net profit, then apply a multiple that reflects your risk profile. Take three years of accounts, weight the most recent year heaviest, and add back costs a new owner would not carry. Then add assets that sit outside the multiple, such as freehold property. Stock is counted separately at completion.

Adjusted net profit is your filed profit corrected for costs that exist because you own the business. It matters because buyers price the earnings a new owner would actually receive. Typical adjustments include owner salary above market rate, personal motoring, one-off legal fees, director pension contributions, and salaries paid to family who do not work in the business.

Use adjusted net profit for small owner-run firms where the buyer is an individual taking over the job. Use adjusted EBITDA where the business carries real debt or heavy equipment, or where the buyer is likely to be a company. The important rule is consistency. Apply the multiple to the same earnings figure every time.

No, and this is a common and costly error. The multiple you apply to adjusted profit already pays for goodwill. Goodwill is the value of reputation, customer relationships and trading history, which is exactly what the multiple prices. Adding a separate goodwill figure counts the same asset twice and tells buyers you do not understand the method.

No. Stock is normally sold separately at valuation, counted on the day of completion and paid for at cost. This is standard UK practice. Advertise your price as a figure plus stock at valuation. Only saleable stock counts. Damaged, obsolete or dead lines are usually excluded or discounted, so agree the counting method in advance.

Stock at valuation means the buyer pays for usable stock on top of the agreed price, at cost, counted on completion day. Stock levels move with the season, so fixing the figure months earlier would make the price wrong when it mattered. Agree in advance who counts it, whether cost excludes VAT, and how old stock is treated.

There is no reliable timescale, and nobody can promise one. Well-priced, well-prepared businesses attract enquiries within weeks. Overpriced ones can sit for a year. Completion usually takes several months after an offer, because due diligence and legal work take time. Preparing your accounts and your lease before listing shortens the process more than anything else.

An asset sale transfers the trade and named assets, leaving the legal entity with you. A share sale transfers the company itself, including its history and liabilities. Buyers often prefer asset sales. Sellers often prefer share sales. The tax outcome differs significantly, so take advice from a qualified adviser before you agree the structure.

Usually yes, if you sell shares or sell business assets as a sole trader or partner. Business Asset Disposal Relief may reduce the rate on qualifying gains, up to a lifetime limit of 1 million pounds. Conditions apply, and they generally require two years of qualifying ownership. Take advice from a qualified tax adviser before agreeing heads of terms.

Often not. Where a business is sold as a going concern and the buyer continues the same trade, the transfer can fall outside the scope of VAT. HMRC sets specific conditions, including VAT registration requirements for the buyer. Do not assume the treatment. Confirm it with your accountant before you agree the price and the completion mechanics.

Yes, but adjust the profit first. If the business occupies the property rent free, its profit is overstated. Deduct a notional market rent, apply your multiple to the rebased figure, then add the surveyor-assessed property value. Alternatively, keep the freehold and grant the buyer a lease. That produces a lower price and an income stream.

A short lease compresses the price, sometimes severely. Buyers cannot borrow confidently against premises they may lose within a few years. Under five years remaining is a serious problem for most trading businesses. Renegotiate the term before you go to market. Also check the rent review pattern, any break clause, and whether the landlord can refuse to assign.

Usually the value of its assets, less its liabilities, and sometimes less than that. Without adjusted profit there is nothing for a multiple to work on. Buyers will look at equipment, property, stock and any contracted income. If the business is loss-making and asset-light, the realistic value may be close to nil.

Yes, and it usually sells for a lower multiple. If one client is 40 per cent of turnover, a buyer prices the risk that the client leaves when you do. Expect a reduced multiple, a larger earn-out, or both. Spreading revenue across more customers before you list is the most direct fix.

Around 5 to 8 per cent above your defensible figure is normal. That is enough to concede something meaningful without inviting a low first offer. Larger padding backfires. Buyers screen listings by price, and a number their lender will not fund removes you from consideration before anyone picks up the phone.

Reduce it, but only once, and only after checking the listing itself. Poor photographs, vague financials and a hidden lease term suppress enquiries just as effectively as a high price. Repeated small reductions signal weakness and invite low offers. One decisive reduction, supported by a fresh valuation, works better than three token ones.

Reducing owner dependency. Move customer relationships to named staff, put key clients on written contracts, and appoint someone to run daily operations. Twelve to eighteen months of this can lift the multiple materially. On 180,000 pounds of profit, moving from 2.4 to 3.2 times adds roughly 144,000 pounds.