When is my business valued on an adjusted profit basis?

Remember, an acquirer’s return on investment is generated through profits. And it’s the adjusted profit figure that is the most important: what is the profit to them? Businesses can then be valued anywhere from five times adjusted profit, all the way through to 10 times plus.

The biggest single contributor to you moving up the valuation scale is the level of profit you have. Businesses with profits of £500,000 are likely to achieve five to six times the adjusted profit figure, as a basis for valuation. As a business hit certain key milestones – 1 million, 2 million, 5 million and 10 million – this is where you really start to see the increase in valuation multiples applied. It’s not just about your business.

It’s also about the acquiring firm. If an acquiring firm has their own ambitions to grow to a significant size, where they themselves attract much higher multiples, they can benefit through arbitrage.

Buying your business at one rate albeit a very good market rate – but still managing a return on investment just through their own size and scale.