What is my company worth? 7 factors owners often overlook

If you’ve ever caught yourself thinking, “What is my company worth?” you are not alone. It’s one of the most common questions we hear from business owners, usually when they reach a significant crossroads.

Perhaps you are thinking about selling, or you have been approached with a management buyout offer? You might be planning for retirement, bringing in a new shareholder, or navigating complex life events like divorce or probate. Whatever the trigger, the question sounds simple – but the answer should never be a quick calculation based on last year’s tax return.

A professional valuation looks at the whole picture, including the “hidden” factors that don’t appear in your statutory accounts.

One size does not fit all

Before we look at the specific factors that drive value, it is important to understand that there is no single “correct” way to value every company. As we stress on our Business Valuation Services page, the method must fit the business model.

For most profitable trading businesses – such as marketing agencies, manufacturers, construction firms and consultancies – buyers are primarily interested in the future profits and cash flows the business can generate, rather than just the resale value of its physical assets.

For these businesses, we will often start with a simple formula:

Valuation = Adjusted EBITDA x The Multiple

Hold on, what is EBITDA?!

If you look at your bottom line (net profit), you are seeing a number that has been reduced by tax strategies, interest payments and accounting write-downs. While efficient for tax purposes, this figure often hides the true ‘operating power’ of your business.

To solve this, valuers use EBITDA. It stands for Earnings Before Interest, Tax, Depreciation and Amortisation (business assets losing value).

Put simply, EBITDA strips away accounting and financing decisions to reveal the cash-generating ability of your business. It means we look at earnings before interest because a buyer might not have your debts. We exclude tax as rates vary. Finally, we ignore depreciation and amortisation. This is because these are non-cash accounting adjustments.

Once we have that number, we apply a “multiple” (often somewhere between three and seven for SMEs, although this can vary widely by sector and situation). The seven factors below help determine whether your multiple is at the higher or lower end of that range.

1. It’s not just profit – it’s the quality of profit

Many owners start with a simple calculation: “We made £100k profit last year, and businesses in our sector sell for 4x profit… so my company is worth £400k.”

In reality, buyers and valuers scrutinise the quality of those profits, not just the quantity.

High-quality profit is defined by three things: recurrence, stability and margins. A business with 500 customers on monthly direct debits is far more valuable than a business that has to hunt for new one-off projects every single month, even if their total profit is identical. Similarly, if your margins are being squeezed by rising costs you cannot pass on, your valuation multiple will drop.

2. Adjustments: finding your ‘maintainable earnings’

EBITDA gets us close to the truth, but for owner-managed businesses, we need to go one step further. We calculate ‘Adjusted EBITDA’. This involves ‘adding back’ personal or one-off costs to show what the business would earn in the hands of a commercial buyer.

Common adjustments include:

• Directors’ pay. Owners often pay themselves a low salary and high dividends to save tax. We adjust this to reflect the actual market rate cost to replace you with a hired manager.
• Discretionary costs: Expenses such as premium company vehicles or travel that, while legitimate, are more generous than a new owner would choose to incur.
• One-off costs. Exceptional legal fees, repairs or redundancy costs that are not expected to happen again.
• Family remuneration. Adjusting salaries paid to family members to reflect the strict commercial cost of employing a non-family member for the same role.

Without these adjustments, you might underestimate your profit by tens of thousands of pounds. This can drastically lower the answer to, “What is my company worth?”

3. Customer concentration (the ‘one client’ risk)

Your customer base is a major driver of value. If 60% of your revenue comes from a single client on a short-term contract, your business carries a high-risk profile. If that client leaves, the business will falter. To a buyer, high risk inevitably means a lower price.

We can assess risk by looking at the spread and security of your income.

4. How dependent is the business on you?

This is often the hardest question for founders to face. In many owner-managed companies, the owner is the ‘hub’ of the business. They often are the people who know how everything works, hold the main client relationships and sign off on every decision.

If the business cannot run smoothly without you, it is much harder to sell. A buyer isn’t just buying a revenue stream, they are buying a system. If that system stops working properly when you leave, the value drops significantly. The most valuable businesses are those where a second-tier management team can run the day-to-day operations autonomously.

5. Systems, processes and information

Behind every highly valued business lies unglamorous but essential ‘plumbing.’ This includes reliable management accounts produced monthly, clear processes for stock control and sales and systems that track KPIs like Gross Margin and Customer Lifetime Value.

When a potential buyer asks, ‘What is my company worth?’ they are also asking ‘how much work will I have to do to fix the back office?’ If your records are messy or exist only in your head, buyers will reduce their offer to account for the risk of unpleasant surprises later.

6. Intangible assets: the ‘hidden value’

Not all value sits in physical assets like vans, stock or laptops. Even for businesses valued on an ‘Asset Basis,’ intangible factors play a huge role.

A generic online calculator will miss these, but a professional valuation will capture:

• Brand reputation. Being the ‘go-to’ name in your region or sector.
• Intellectual property. Ownership of trademarks, software code or unique designs.
• Data. A clean, compliant and segmented database of customers.
• Team culture. A skilled, stable team that is relatively easy to recruit and retain.

7. Future potential vs. historical performance

Finally, any credible answer to “What is my company worth?” must look forward, not just back. A business operating in a sector in long-term decline is worth less than one in a booming market, even if their current profits are identical.

Valuers will assess market trends to see if your sector is growing or shrinking. They will also look at scalability to see if the business can grow without massive capital investment, and they will look at barriers to entry to understand how hard it is for a competitor to copy your success.

Practical steps: how to increase your company’s value

If you want to improve the answer to “What is my company worth?” – even if you aren’t selling today – there are practical steps you can take immediately.

Start by clarifying your goal: are you selling, planning for Inheritance Tax (IHT) or bringing in a partner? The purpose changes the approach. Next, clean up your financials to ensure you have accurate monthly management accounts. Work to de-risk your revenue by moving customers from one-off orders to recurring contracts, and start documenting your processes to get the knowledge out of your head and into a manual.

How THP can help you answer “What is my company worth?”

At THP Chartered Accountants, we work with owners across London, Essex and Surrey who need a realistic, defensible valuation.

Because we understand that one method does not fit all, we take the time to choose the right valuation method for your specific business model.

If you are ready to move from a rough guess to a professional view of what your company is really worth, get in touch with THP’s  Business Valuation Services team today. We’d be delighted to help you.