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BUSINESS SALE & EXIT

Independent business valuations before a sale.

Prepare for a business sale with a valuation that explains the earnings, cash position and assumptions behind the numbers.

ACA

Kishen Patel, BFP ACA
ICAEW Chartered Accountant

UK BUSINESS OWNERSPRIVATE COMPANIES

Does a pre-sale valuation tell me what I will receive?

A valuation is an estimate on stated assumptions. Sale proceeds depend on the agreed price and how cash, debt, working capital and conditional payments are treated. Ask whether a quoted figure refers to the operating business or the equity.

Practical example: A headline offer with deferred consideration is different from cash payable at completion. Keep a bridge showing the agreed adjustments and the timing of each payment.

Understand deferred consideration and earn-outs

YOUR NEXT STEP

Before you talk price with a buyer

Separate value from sale proceeds

An enterprise value discussion is only one step. Cash, debt, working capital and deferred payment terms can affect what owners receive and when. Ask which assumptions a proposed figure uses.

Bring the records that explain the earnings

Share the periods you have available, who would replace the owner’s duties and whether any large recent contract is unusual. Start with a summary; confidential records can follow once scope is agreed.

Discuss a pre-sale valuation Prepare the valuation records
01 / START WITH THE QUESTION

What is your business worth to a buyer?

A sale valuation provides a basis for discussion. It should define what is being valued, at what date and on what assumptions. The price a particular buyer will pay can also reflect strategic fit, financing, negotiation and the terms of the transaction.

We start with the purpose of the valuation and the information available. A full business sale, a partial exit and an internal ownership discussion may need different analysis. The scope and intended use are agreed before work begins.

02 / LOOK BENEATH THE HEADLINE

Earnings, risk and cash all matter

Reported profit can contain unusual items or costs that change after a sale. Proposed adjustments need evidence. Customer concentration, reliance on the owner and the sustainability of trading are questions to examine, not simply labels to attach to a multiple.

Depending on the circumstances, the analysis may consider earnings-based methods, cash flow forecasts or the asset base. The method should fit the business, with limitations made visible.

A percentage can hide an important question.

If an owner leaves, will the business need to pay someone to perform their role? Removing all owner remuneration from earnings without considering replacement cost can overstate sustainable profit.

03 / DISTINGUISH THE NUMBERS

Business value is not automatically the seller’s proceeds

Enterprise value and equity value describe different things. A bridge between them may consider cash, debt and other agreed adjustments. Working capital and transaction terms can also affect the amount payable. Personal tax and transaction costs require their own assessment.

ILLUSTRATIVE ENTERPRISE VALUE£1,000,000
+ £100,000 cash − £250,000 debt
ILLUSTRATIVE EQUITY VALUE£850,000

Hypothetical example only. It excludes other adjustments, fees and tax and is not a valuation of your business.

04 / PREPARE FOR THE DISCUSSION

What information will help?

  • Recent annual accounts and current management accounts.
  • A summary of revenue, customers and the business model.
  • Details of borrowing, cash and significant commitments.
  • Forecasts, if available, with their key assumptions.
  • The reason for the valuation and any planned transaction.

No documents are needed to send an enquiry. We will agree an appropriate information request after discussing your requirements. Explore how valuation fees are scoped or valuing a particular shareholding.

Before accepting a price, reconcile what it means.

A business sale valuation should make the route from trading performance to the owner’s equity clear. An offer may include debt assumptions, deferred payments or a working capital condition that changes its economic effect.

Our normalised EBITDA worked example explains replacement salaries and add-backs. If an offer and a report disagree, explore a business valuation second opinion before assuming the headline gap reflects a different business value.

LOOK BEYOND THE HEADLINE

Read a buyer’s price as a set of assumptions

Before reacting to an offer, ask the buyer to state the earnings measure, what the price includes, the relevant date, the assumed cash and debt treatment and any working capital condition. Then distinguish the price from the timing and certainty of payments. A higher headline that depends on future performance is economically different from an unconditional amount paid at completion.

Build a short evidence pack around the likely challenge

If the business depends on the owner, prioritise the role and replacement cost analysis. If recent growth drives the value, connect it to contracts, margins and delivery capacity. If cash appears high, explain the operating needs and restrictions before treating it as surplus. The strongest preparation addresses a specific question with evidence.

For example, an owner expecting £300,000 maintainable earnings should be able to explain the period, adjustments and current trading supporting that figure. The purpose is not to persuade a buyer to accept every adjustment; it is to identify what is agreed, what is uncertain and what further work would change the assessment.

A LITTLE MORE CONTEXT

Before you
get in touch.

Will the valuation tell me exactly what a buyer will pay?+

No. A valuation informs the discussion. Actual offers can reflect buyer priorities, negotiation, financing and transaction terms.

Can you help before I appoint a buyer or start a sale process?+

Yes. The valuation can be scoped for planning, with its purpose, assumptions and limitations agreed at the outset.

MAKE THE NEXT STEP A CLEARER ONE

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your question.

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WHERE WE CAN HELP

Independent advice, wherever your business trades.

We accept remote valuation enquiries from owners and shareholders across England, Scotland, Wales and Northern Ireland.

Your operating location, the intended use of the report and any independence requirements belong in the brief. Explore coverage and the questions to ask before commissioning.

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