What your business is worth, and how buyers price it.

Your business is worth its adjusted EBITDA multiplied by a market multiple. In the lower mid-market that multiple typically runs 3.5x–9x, so a business earning £1m of adjusted EBITDA is usually worth £3.5m–£9m depending on category, size and quality (see the full multiples by industry for your sector’s band). The formula is simple; the work is in the two inputs. Buyers argue about what your real earnings are, and about which end of the multiple band you deserve. This article walks through both, the way buyers actually do it.

How do buyers actually decide what a business is worth?

Not with a discounted cash flow model, and not with your accountant's book value. In our deals, almost every lower-mid-market business is priced the same way: a buyer takes adjusted EBITDA, operating profit restated to show what the business earns under new ownership, and applies a multiple drawn from comparable transactions in your category and size bracket. Everything else in a negotiation is a fight over those two numbers.

One exception worth knowing: below roughly $500k of earnings, buyers stop using EBITDA and price on SDE (seller's discretionary earnings, which adds back the owner's full compensation) at around 1.8x–4.2x. If that is your bracket, the mechanics below still apply, the bands are just lower and the owner's salary treatment changes.

The three steps to a defensible number

Step 1: normalise your earnings

Adjusted EBITDA is your operating profit plus add-backs: costs that genuinely would not exist under new ownership. Your above-market salary, the family car on the books, one-off legal fees, a relocation, a discontinued product line. The test is strict, would the cost truly disappear, and can you prove it with documents? Every defensible pound you add back is worth its multiple in price; every rejected add-back costs you the same multiple in credibility, because buyers who catch one inflated add-back re-check all of them. We cover the full list of what survives diligence in our guide to adjusted EBITDA add-backs.

Step 2: find your base multiple

Your base multiple comes from what buyers have recently paid for businesses like yours, same category, same rough size. Size matters more than most owners expect: a £3m-EBITDA business commands a materially higher multiple than a £600k one in the same sector, because more buyers can underwrite it and debt is easier to raise against it. The fastest way to anchor this is to look at real comparable transactions in your sector rather than headline multiples from listed companies, which run far higher than private deals ever close at.

Step 3: adjust for quality

Within any band, quality factors move you up or down. Buyers pay at the top of the range for revenue that repeats (subscriptions, contracts, reorder rates), a management team that runs the business without the owner, a spread customer base, and clean growth. They pay at the bottom, or walk, for customer concentration above 25–30% of revenue, owner dependence, declining margins, or a single supplier or channel that could break the model. Two businesses with identical EBITDA routinely sell 2x–3x of EBITDA apart on these factors alone.

What multiple should I expect?

These are the typical lower-mid-market bands we use in our own valuation model, based on 12 years of deals across the UK, US, Europe and Middle East:

• Consumer brands. 3.5x–9x EBITDA, varying by category and size, strong repeat-purchase brands with £2m+ EBITDA sit at the top; single-channel brands at the bottom.
• Services businesses. 3.5x–9x EBITDA, contracted, recurring revenue earns the upper half; project-based work the lower.
• Software and apps. 6x–15x EBITDA, or 2x–4.5x revenue for fast-growing recurring-revenue businesses not yet optimised for profit.
• Agencies. 3.5x–7.5x EBITDA, retainer-heavy agencies with low founder involvement at the top of the band.
• Distribution. 3.5x–7x EBITDA, driven by exclusivity of lines, stickiness of customers and working-capital efficiency.
• Under ~$500k of earnings. Priced on SDE at roughly 1.8x–4.2x rather than an EBITDA multiple.

A worked example

Take a consumer brand with £1.2m of reported EBITDA on £8m of revenue.

1. Normalise. The owner pays herself £250k against a £120k market-rate replacement (+£130k), and there was a one-off £70k warehouse move (+£70k). Adjusted EBITDA: £1.4m.
2. Base multiple. Comparable transactions for repeat-purchase consumer brands at this size cluster around 5x–6x. Base case: 5.5x, or £7.7m.
3. Quality adjustments. 60% of revenue is repeat purchase and no customer exceeds 10% of sales, supports the top of the band. But 70% of sales run through one retail channel, pulls it back. Realistic range: 5x–6x, so £7m–£8.4m.

That £1.4m spread between the ends of the range is the negotiation. Preparation, documented add-backs, reduced concentration, a management layer, is what moves you from the bottom of it to the top.

What moves the number most?

In order of impact, from what we see across mandates:

• Defensible add-backs. Each £100k of accepted add-backs is worth £350k–£900k of price at typical multiples. Nothing else compounds like clean earnings.
• Owner dependence. A business that runs without you can be worth 1x–2x of EBITDA more than one that cannot, and is often the difference between a deal and no deal.
• Revenue quality. Recurring and repeat revenue outprices one-off revenue in every category, because the buyer is underwriting next year, not last year.
• Concentration. One customer, supplier or channel over 25–30% caps your multiple regardless of how good everything else looks.
• Competitive tension. A single unsolicited buyer prices at the bottom of the band; a run sell-side process with multiple qualified buyers prices at the top. In our experience the gap between one offer and five is rarely less than a full turn of EBITDA.

Most of these can be improved in the 12–24 months before a sale, our guide on preparing your business for sale sets out the sequence.

What to do next

Put your own numbers through the formula: our free 10-question valuation tool applies these same category bands and quality factors to give you an indicative range in a few minutes. If the number justifies a conversation, that range, and what would move it, is exactly where a sale process starts.

Frequently asked questions