Buyers pay more for a business that makes steady profits, has clean records, and can run without its owner. If you are thinking of selling in the next few years, the work you do now on those areas will usually have more effect on the price than anything you do once a buyer appears.
Two to three years is a sensible lead time. It gives you time to make changes and show a track record of results.
How buyers value a business
Many small and medium businesses are valued as a multiple of maintainable profit, often measured as earnings before interest, tax, depreciation and amortisation. The multiple reflects risk: the more confident a buyer is that profits will continue, the higher it goes.
That means value can be added in two ways: by increasing sustainable profit, and by reducing the risks that push the multiple down.
As an illustration, a business with maintainable profit of £400,000 valued at four times profit is worth £1.6m. Adding £50,000 of sustainable profit adds £200,000. If reducing risk also moved the multiple from four to five, the higher profit of £450,000 would be worth £2.25m. The multiples here are only examples; the right figure depends on your sector and circumstances.
Make the profits clear
Buyers look closely at the accounts. Profits need to be easy to follow and backed by good records. Personal costs run through the business, one-off items and unusual director pay all need explaining and adjusting, which creates doubt.
- Produce reliable monthly management accounts.
- Remove personal and non-business costs from the company.
- Document any one-off income or costs so they can be adjusted for.
- Show a forecast you can explain and deliver against.
Reduce dependence on you
If customers, suppliers and staff all deal with you personally, a buyer is taking a risk that the business will weaken when you leave. That usually means a lower price, a longer handover or more of the price paid as an earn-out.
Build a management team that can run day-to-day operations. Write down key processes. Introduce colleagues to major customers and let them hold those relationships.
Strengthen income and contracts
Recurring and contracted income is worth more than one-off sales. Where you can, move customers onto agreements, retainers or subscriptions. Reduce reliance on any single customer; if one account makes up a large share of sales, a buyer will see risk.
Check that key contracts with customers, suppliers and staff are written down and can transfer to a new owner. Make sure intellectual property, domain names and trademarks are owned by the business rather than by you personally.
Tidy the balance sheet
Clear any overdrawn director's loan account, settle disputes where you can and deal with old or slow-moving stock and bad debts. Look at working capital: a buyer will expect a normal level of debtors, stock and creditors to be left in the business, so chasing debts faster helps cash flow and presents a better picture.
Surplus cash or investment property in a trading company can complicate a sale and, if significant, can affect whether the company counts as trading for tax reliefs. Consider whether these should be extracted or separated before a sale.
Plan the tax
Business Asset Disposal Relief charges capital gains tax at 18 percent from 6 April 2026 on up to £1m of lifetime gains, compared with 24 percent otherwise. To qualify on a share sale you generally need at least 5 percent of the shares and votes in a trading company and to have been an employee or officer for two years before the sale. Check the conditions well in advance, particularly if you are thinking of giving shares to family members or bringing in managers.
What to do
- Set a realistic timetable for the sale.
- Get an initial view of value and the factors that affect it.
- Improve the quality of your financial information now.
- Work on reducing reliance on you and on a few customers.
- Review the shareholding structure and tax reliefs early.
If you are thinking about selling and want to know where to start, book a free call.
