Valuation feels like a dark art from the outside. It is actually three questions, asked in order. Here they are, in plain English.
Almost every service business of your size is valued the same way: a multiple of profit. The negotiation is really about two things, which profit figure, and which multiple, and then a third thing most owners discover late: the structure behind the headline.
Buyers work from EBITDA: earnings before interest, tax, depreciation and amortisation. Roughly, the cash profit of the trading business. But they use an adjusted figure: your salary gets normalised to a market rate, personal costs that run through the business come out, one-off items are stripped. These adjustments can move the figure in your favour, so it pays to know them before a buyer does. A pound of defensible adjusted EBITDA is a pound the multiple gets applied to.
The multiple is where everything about quality gets priced. Two businesses with the same £1m of profit can sit multiple turns apart, and the gap is explained by the things covered in What buyers pay for: recurring revenue, customer spread, a second tier, clean numbers. Size matters too: larger businesses command higher multiples, which is exactly why building for three more years before the final sale can be worth more than squeezing the price today.
Two offers with the same headline can be very different deals. The questions that matter: how much is cash at completion, how much is deferred, what conditions attach to the deferred part, and what happens to the equity you keep. An all-cash offer at a lower number is sometimes worth more than a bigger headline built on an earn-out you may never see. Judge offers on what is certain, what is likely, and what is hoped for, in that order.
The highest headline often comes from the buyer who knows least, priced before diligence, revised after. A credible number from a buyer who has done the work, and who shows you how they got to it, tends to survive to completion. The most expensive outcome in this market is not a modest price; it is six months with the wrong buyer and a deal that dies.
If you want a starting point, our free valuation estimate gives a range in a few minutes, with no obligation and no follow-up chase.
Tatu partners with the owners of UK service businesses making £500k to £3m a year in profit: money out today, a meaningful stake kept, and a bigger sale built together. See how it works, try the free valuation estimate, or write to nico@tatu-capital.com.