Selling or buying an owner-managed company is rarely just about the cheque at completion. Shareholders want fair recognition of the sweat equity tied up in their firm, while acquirers need confidence that forecast benefits will materialise. That tension makes valuing an established business both art and science.
The science has changed. Average mid-market deal size is rising and sector price gaps have widened. The latest UK&I M&A Monitor shows the median EBITDA multiple edging up to 5.35× for H2-2024, with spreads of more than five turns between top- and bottom-quartile IT services targets. Meanwhile, headline economic variables feed directly into discount rates. The Office for Budget Responsibility now assumes 10-year gilt yields averaging 4.8% across 2025-29 (OBR, 2025), lifting hurdle rates for buyers whose models lean on debt.
At the same time, the small-business population has stabilised: 2.725 million VAT/PAYE businesses were on the ONS register in March 2024, only 0.1% down on the previous year (ONS, 2024). Steady supply meets selective demand, so preparation and method matter more than ever. In this blog, we set out how multiples, cashflow modelling and the SME index interact when valuing an established business, and the paperwork owner-managers now need to close at the right price.
Why valuation still matters in 2025
For many entrepreneurs, the bulk of personal wealth is locked inside their company. A 1-point swing in the EBITDA multiple can change net proceeds by hundreds of thousands of pounds. Boards also need a robust valuation when:
- Management buy-outs: Negotiators need a starting point anchored in market evidence.
- Shareholder disputes: A court-defensible figure reduces the risk of protracted litigation.
- Succession planning: HMRC may challenge undervalued gifts, so pre-sale valuations support tax clearance.
The SME index: What the latest data tells us
Private-market multiples move faster than quoted comparables. We track the index compiled from announced UK deals under £50 million. The headline range in 2025 is:
- Professional services: 6–8× EBITDA.
- Engineering and industrials: 4–6× EBITDA.
- Retail and hospitality: 3–5× EBITDA.
Within those bands, the gap between the 25th and 75th percentiles has widened by roughly two turns since 2023. That divergence reflects buyer caution around energy-intensive activities and excitement in AI-enabled niches. Understanding where a specific business sits on the SME index is, therefore, step one when valuing an established business against market benchmarks.
Market multiples: Reading the spread
Using price/earnings or EBITDA multiples feels intuitive, yet pitfalls abound:
- Normalising profit: One-offs such as pandemic grants must be stripped out.
- Owner remuneration: Excess salary and benefits distort true operating profit.
- Size premium: Dealsuite data confirms companies with EBITDA below £500,000 still trade at a 30% discount to those above £2 million.
We start by adjusting historical accounts and then apply a weighted basket of observed transactions, listed peers and the SME index. Weightings hinge on comparability of business model, growth rate and customer concentration. Our valuing model flags any sector outliers so shareholders see how upside or downside risk translates into the multiple.
Discounted cashflow: Stress-testing future profits
DCF helps test whether the multiple passes the smell-check. Key inputs in 2025 include:
- Risk-free rate: 4.8% from gilt forecasts (OBR, 2025).
- Small-company alpha: typically 3-5% to capture volatility.
- Long-run growth: 2%, in line with consensus UK productivity expectations.
Small shifts can move equity value sharply. We therefore model three scenarios – base, high growth, downside – and reconcile each back to implied exit multiples. If implied values drift outside market bands, assumptions must be revisited before valuing an established business is finalised.
Asset-based cross-checks
While going-concern earnings normally dominate, lenders often insist on a fallback asset appraisal. Common adjustments are:
- Freehold property: Revalue based on recent commercial comparables minus sale costs.
- Plant and machinery: Depreciated replacement cost seldom equals fair market value; auction data provide better benchmarks.
- Hidden liabilities: Dilapidations, warranties and deferred consideration reduce net asset value and must feed back into price discussions.
Beyond the headline price: Valuing an established business for exit
A credible figure is only half the job. Buyers now ask for:
- Three-year integrated forecasts: Monthly P&L, cashflow and balance sheet with linked assumptions.
- Systems reports: Clean cloud-based bookkeeping and CRM extracts to validate revenue quality.
- Tax documentation: Evidence that R&D claims, VAT status and PAYE reconciliations are up to date.
Failing to collate these early can cost real money.
Tax planning pointers
The valuation figure feeds directly into Capital Gains Tax. From April 2025 the lifetime limit for Business Asset Disposal Relief is £1 million and gains qualifying for the relief are taxed at 14% (HMRC, 2025). Sellers expecting proceeds above that level should model alternative structures early – for example, vendor loan notes, enhanced pension contributions or staged earn-outs – to smooth headline tax liabilities. Our team can integrate these steps alongside valuing an established business.
Getting ready to engage with buyers
Early preparation saves time later. Core actions are:
- Quality of earnings review: Identify and adjust for non-recurring items before the buyer does.
- Cashflow forecasting: Show how working-capital swings affect debt-free price.
- Management depth: Document roles, KPIs and succession plans to reassure acquirers the business is not owner-dependent.
What does a professional valuation cost?
Fees vary with scale, complexity and required independence. A formal written report for a £3 million turnover firm typically ranges from £6,000 to £10,000 + VAT. We quote fixed fees where scope is clear.
Next steps
Accurately valuing an established business is never simply a box-ticking exercise. It underpins shareholder exits, fundraising, management incentives and sometimes family harmony. By combining market multiples, scenario-tested cashflow models and asset cross-checks, we give owner-managers a figure that stands up to buyers, lenders and HMRC alike.
If you are thinking about a sale, buy-out or simply want to benchmark progress, drop us a line – our valuation specialists will explain how we can tailor the process to your timetable and sector.