Posted: 02 / 06 / 2026
If you are considering selling your business, you may already have a figure in mind for what it is worth. For business owners that number often forms early; shaped by industry rumours, headline deals, or rules of thumb about profit multiples.
Without real market validation, that expectation can become more belief than reality. After a while that number starts to feel factual, and it’s often the first thing that needs challenging when you start to think about selling your business.
HOW IS A BUSINESS VALUED?
Typically a business is valued using one of a number of widely accepted methods. The most common method is a multiple of EBITDA (Earnings before interest, taxation, depreciation and amortisation).
The value of a business is determined by the amount which a buyer is willing to pay for it. There is no hard and fast rule that applies to most companies, as the value of a company is dependent on a number of financial and non-financial factors, which is why the EBITDA multiples used can vary for companies in the same industry.
One thing that is often misunderstood by business owners is that buyers are not buying historic results. They’re buying future earnings, future stability, and their confidence in the people running the business.
Two businesses with identical profits can receive completely different valuations. One feels stable, predictable, and scalable. The other feels dependent on a handful of customers, one founder, and a set of forecasts which are not achievable. That difference matters far more than most owners expect, because buyers ultimately pay for confidence as much as performance.
WHAT AFFECTS THE MULTIPLE USED?
Multiples are useful reference points and they help create a framework for discussion, but treating them as fixed answers is one of the most common mistakes business owners make.
A 6x EBITDA multiple, for example, will be based on a certain risk profile. The common considerations for which multiple is used include:
- How reliable are earnings?
- Is growth sustainable?
- How concentrated is the customer base?
- Can the management team operate without the owner?
- Are financial controls strong?
Those factors influence how risky future earnings appear. And valuation is heavily tied to perceived risk.
We often see business owners focus too heavily on headline profitability while underestimating how much operational weaknesses reduce confidence.
HOW DO BUYERS ACTUALLY ASSESS VALUE?
Most buyers care less about what the business achieved three years ago and more about what it is likely to deliver over the next three.
That is why forecast credibility matters so much in a transaction process. Strong forecasts are not overly optimistic spreadsheets designed to impress investors. They are evidence-backed models supported by trading history, operational visibility, and realistic assumptions.
One thing that consistently stands out in transactions is that buyers place a higher perceived value on businesses which understand their numbers deeply. Not polished presentations or exaggerated growth claims, but businesses that demonstrate:
- Clear reporting
- Realistic assumptions
- Consistent delivery
WHY RISK CHANGES VALUATION
Risk is one of the biggest drivers of value, yet business owners often view it very differently from buyers. Internally, owners usually understand the context behind operational issues and know which problems are manageable.
Buyers don’t have that same familiarity. They assess what happens if things go wrong and how exposed the business could be if performance slips. Common valuation risks include:
- Reliance on one or two key customers
- Weak financial reporting
- Founder dependency
- Lack of management depth
- Inconsistent margins
- Poor forecasting discipline
None of these automatically kill a deal, but they reduce certainty and lower certainty almost always affects price. A useful way to think about valuation is this: buyers pay more when future earnings feel dependable.
IS THERE A SINGLE “CORRECT” VALUATION?
Usually there is not a single “correct” valuation. In most transactions, valuation is better understood as a range influenced by several commercial and strategic factors, including:
- Financial performance
- Market conditions
- Competitive tension
- Deal structure
- Buyer motivation
- Timing
The final number is rarely purely mathematical. Different buyers can look at the same business and arrive at very different conclusions depending on how they assess opportunity, risk, and strategic fit.
For example, a strategic acquirer may be willing to pay materially more than a financial investor because the acquisition creates synergies elsewhere in their group. Equally, another buyer may reduce value because they see integration challenges or operational risks that increase uncertainty after completion.
WHAT SHOULD BUSINESS OWNERS FOCUS ON BEFORE A SALE?
The businesses that achieve stronger outcomes are rarely the ones scrambling six months before exit.
Value is usually built years in advance. The biggest drivers tend to be:
- Credible financial forecasting
- Consistent operational performance
- Reduced dependency risks
- Strong reporting discipline
- Management depth
- Clear growth opportunities
The businesses that attract stronger valuations are normally the ones that have assessed risks early, implemented actions to mitigate the perceived risks and have put in place strong controls. Where the risks have not been addressed, buyers usually look for ways to protect themselves, which often leads to:
- Earn-outs
- Deferred consideration
- Heavier due diligence
- Lower headline valuations
FAQs
There is no single biggest factor, however strong financial controls, low dependence on the owner and a clear plan for succession can lead to higher valuations if implemented correctly.
Valuations based on EBITDA multiples are reference points, not definitive answers. The quality and risk profile of the business significantly changes how multiples are applied, and this will differ depending on the strategic fit for a buyer.
Forecasts help buyers assess future profitability and understand whether growth assumptions are realistic. A buyer is more concerned about the ability of a company to achieve future profitability, and while historic performance can be an indicator of this, credible forecasts are crucial.
Weak controls, high customer concentration, a high level of dependence on an owner or founder, and unrealistic forecasting are common factors we often see which reduce value.
Yes. Differences in financial KPIs, management credibility, and risk profile can materially affect value.
A business valuation performed by a M&A (Mergers and Acquisitions) or Corporate Finance professional will provide strong evidence of a realistic valuation of your business. These professionals are involved in advising clients on buying and selling businesses, so understand the way a buyer will perceive value.
Sedulo Deal Advisory is experienced in guiding our clients through the full lifecycle of a transaction process. From an initial meeting, we endeavour to fully understand your requirements and expectations to ensure we can provide world-class service throughout the transaction.
We have experience in achieving premium valuations for the companies we have acted for by nurturing them in preparation of a sale and generating maximum interest from potential bidders.
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AUTHOR BIO
Sean Gardner (pictured) is a Corporate Finance Manager at Sedulo Deal Advisory, specialising in advising business owners on exiting their business, business valuations, transaction support, and strategic advisory.
He works with business owners and shareholders to understand what drives value in real-world transactions and how businesses can position themselves for stronger outcomes.