If you’ve decided to sell, the number that matters isn’t the one you have in your head. It’s the one a buyer’s finance team will arrive at independently, then compare against whatever you tell them. The gap between those two numbers is where deals get renegotiated, delayed, or lost — and it’s almost always smaller for owners who got a proper valuation done 12 months before going to market than for owners who got one done in the middle of a live deal.
This guide covers what actually needs to sit behind your asking price, how the current tax environment affects what you keep, and the realistic timeline for getting exit-ready.
The Quick Answer
A defensible exit valuation starts with normalised EBITDA (your real, ongoing earnings – not the number on your statutory accounts), applies a sector-appropriate multiple based on genuine comparable transactions, and documents every assumption so a buyer’s due diligence team has nothing easy to challenge. For most UK SMEs this sits in the 3x–8x EBITDA range depending on sector, growth, and earnings quality, with the median UK SME multiple at roughly 5.4x as of the most recent SME Valuation Index. The valuation itself should be prepared by an ICAEW Chartered Accountant – not estimated from a generic online calculator – because the moment it goes to a buyer, it needs to hold up.
Why Your Own Estimate Is Usually Wrong -In Either Direction
Founders routinely misprice their own business by 20–40%. It goes wrong in both directions:
- Undervaluing, by applying a sector multiple to reported profit instead of normalised profit – missing the fact that your own salary, one-off costs, and personal expenses run through the business are masking the real maintainable earnings a new owner would inherit.
- Overvaluing, by anchoring on the most flattering deal they heard about in their sector, rather than the median – and then being unable to explain the gap when a buyer pushes back.
Either mistake costs you. Underpricing leaves money on the table before negotiations even start. Overpricing burns months in a process that stalls the moment a buyer’s advisers run their own numbers.
What a Buyer’s Finance Team Is Actually Checking
Due diligence is sometimes described as “where valuations go to die” – not because buyers are looking for reasons to walk away, but because they’re systematically looking for reasons to chip the price. Three things get scrutinised hardest:
Normalised EBITDA and the add-backs behind it. Every adjustment you’ve made to reported profit – owner salary above market rate, one-off legal fees, that “team trip” that was really a holiday – needs to be defensible on its own. Aggressive, undocumented add-backs don’t just get challenged individually; they make a buyer assume the rest of your numbers are optimistic too, which drags down trust in the whole valuation.
Working capital and net debt. The headline enterprise value and the cash you actually receive at completion are two different numbers. Buyers adjust for net debt (borrowings, overdrafts, leases) and for whether the business is being delivered with a “normal” level of stock, debtors, and creditors. In the current higher-rate environment, buyers are tighter on these mechanics than they were a few years ago, because cash matters more when funding is expensive.
Quality of earnings (QoE). Beyond the multiple itself, buyers want to know whether your profit is repeatable. Recurring revenue, long-term contracts, and stable margins make a forecast credible. A business with volatile margins and weak cash conversion gets priced more cautiously, even if revenue is growing -multiples alone rarely settle the argument anymore.
The Tax Timing Question: BADR at 18%
Business Asset Disposal Relief (BADR) – the reduced Capital Gains Tax rate available on qualifying business sales – now sits at 18% on gains up to a £1 million lifetime limit per individual, having risen from 14% in 2025/26 and 10% in the years before that. Above the £1 million cap, standard CGT rates of 18% (basic rate) or 24% (higher rate) apply.
This matters for two reasons:
- BADR is a partial shield, not a blanket one. On a larger exit, only the first £1 million of your gain benefits from the reduced rate – the rest is taxed at standard CGT rates. Structure the deal (and your expectations) around after-tax proceeds, not headline price.
- Eligibility has to be actively maintained, not assumed. You generally need to hold at least 5% of ordinary share capital and voting rights, and have been an officer or employee of the company, for a minimum of two years before the sale. A late-stage funding round that dilutes you below 5%, or a board change in the run-up to sale, can quietly disqualify you – which is exactly the kind of thing that should be checked 12–24 months out, not discovered during due diligence.
If your deal structure includes an earn-out, how it’s treated for tax purposes depends on its mechanics: a genuine deferred capital payment may still qualify for BADR, while an earn-out structured to look like employment income gets taxed under PAYE instead, with no BADR relief. This is a conversation to have with your accountant before heads of terms are signed, not after.
Why “12 to 24 Months Before” Is the Right Planning Horizon
Founders who come to a valuation specialist mid-process – term sheet already on the table, buyer already in the room – are always working harder for a worse outcome than those who planned ahead. Here’s what time actually buys you:
- Time to fix what a buyer would otherwise find. Customer concentration, over-reliance on a single contract, weak recurring revenue, or poor financial controls all drag down your multiple. Eighteen months out, these are fixable. Found during due diligence, they’re a price cut.
- Time to build the financial story. A valuation isn’t just a spreadsheet – it’s a narrative explaining where the business has come from, what’s driving growth, and what it looks like to a buyer without you in the room. That story takes longer to build credibly than to write down.
- Time to get your BADR position locked down, including checking your shareholding, employment status, and the trading status of the company itself (cash-heavy balance sheets or investment property holdings can jeopardise “trading company” status for BADR purposes).
What Should Be in Your Exit Valuation Report
Before you take any number to a buyer, the underlying report should include:
- A clearly stated normalised, maintainable earnings figure, with every adjustment documented and explained
- The methodology applied – EBITDA multiple, DCF, or a blend – with the reasoning for why it suits your business
- Comparable transaction evidence supporting the multiple used, not just an assertion of what’s “typical” for your sector
- A written explanation of key value drivers and risk factors specific to your business
- The name, qualification, and signature of the ICAEW Chartered Accountant who prepared it
If a quote you’ve received won’t produce all five of those, it’s a sense-check, not an exit valuation.
How Long the Process Takes
A standalone exit valuation report is typically delivered in 7–10 working days once complete financial information is provided. That’s separate from the sale process itself, which – including preparation, marketing, negotiation, and completion -usually runs 6–12 months for a well-prepared SME, longer if there’s meaningful tidying up to do first.
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Over 12 years across Big Four audit, Investment Banking and corporate advisory. Kishen works with UK SMEs on valuations, exit planning, fundraising and financial strategy. ICAEW regulated. Big Four trained. Based in London.