What will a buyer actually acquire?
Start with the transaction perimeter. A sale of shares transfers an interest in the company, while an asset sale may transfer only specified assets, contracts and liabilities. Property, surplus cash, shareholder loans and retained activities need to be identified. A figure without that perimeter can mean something different to each party.
Build an earnings adjustment schedule
A buyer will examine how much of the reported profit can continue after completion. List each proposed adjustment, the amount, the reason and the evidence. An exceptional legal cost may warrant consideration; a recurring cost described as exceptional each year may not. If the owner leaves, allow for the cost of replacing their work before treating remuneration as an add-back.
Illustrative example: the replacement salary matters
Suppose reported EBITDA is £220,000, including a genuinely non-recurring £15,000 expense and £90,000 of owner remuneration. If replacing the owner costs £70,000, the illustrative adjusted EBITDA is £255,000: £220,000 + £15,000 + £90,000 − £70,000. This is an earnings bridge, not a business valuation. A defensible valuation still needs evidence for its method and assumptions.
Compare the terms as well as the headline
An offer paid entirely at completion is different from the same headline amount paid through a performance-dependent earn-out. Deferred consideration, warranties, working capital adjustments and the buyer’s financing may affect the commercial outcome. Discuss these with the relevant legal and tax advisers alongside the valuation work.
What to ask for in the engagement
Agree the valuation date, intended users, transaction perimeter and required written explanation. Tell us whether you are exploring options or responding to an actual offer. The analysis can then address the decision you need to make rather than produce a number with no clear use.
What would I actually receive when I sell?
A headline price can describe enterprise value, equity value or a maximum including conditional payments. Ask the buyer to define the figure before comparing offers.
| Illustrative price bridge | Amount |
|---|---|
| Agreed enterprise value | £1,020,000 |
| Cash added under the assumed terms | + £100,000 |
| Debt deducted under the assumed terms | − £250,000 |
| Equity consideration before other adjustments | £870,000 |
| Deferred portion of that consideration | £170,000 |
| Cash at completion before fees and tax | £700,000 |
This simplified illustration assumes a sale of all shares and no other adjustments. The £170,000 deferred portion is part of the £870,000, not an extra payment. Its timing, conditions and recovery risk require separate consideration. Working capital, other debt-like items, transaction costs and personal tax can change the outcome.
Use the valuation documents checklist to prepare the evidence, and read the enterprise-to-equity value bridge before comparing headline offers.
Three improvements to make before discussing an asking price
- Reconcile the trading story. Explain changes in sales, margins and cash collection using consistent monthly figures.
- Show what continues without you. Document responsibilities, customer relationships and realistic replacement costs.
- Separate evidence from expectations. Distinguish signed contracts, repeat orders and uncertain pipeline.
Agree what the pre-sale valuation must explain
Ask for a clear bridge from the trading evidence to the valuation conclusion and then to the proposed transaction. Identify the assets or shares included, relevant debt and cash assumptions, and what the buyer expects the owner to continue doing. Keep improvement plans separate from the business’s current operating position.
Compare completion cash with fixed deferred amounts, earn-outs and any retained interest. A higher maximum consideration can involve different timing and exposure. Financial modelling should follow the actual commercial terms, with legal and tax implications reviewed separately.
Use the rule-of-thumb guide to challenge a turnover-based headline and the documents checklist to prepare the supporting records. The work can improve the quality of a sale discussion, but it cannot guarantee a buyer, price or completion date.
Your starting checklist.
- Three years of accounts and latest management figures
- Owner responsibilities and replacement costs
- Revenue concentration and recurring contracts
- Cash, borrowing and proposed deal perimeter
Start with the purpose. Confidential documents can follow through an agreed channel.
Further questions
Is my business valuation the same as my sale proceeds?
No. The negotiated terms, cash and debt definitions, payment timing, costs and personal tax position can make proceeds different from an assessed business or share value.