How to Value Your Business: 3 Methods Every Founder Should Know

Every founder, at some point, asks the same question: what is my business actually worth?

It sounds simple. It’s anything but.

I’m Adam J. Graham, and I’ve spent the better part of two decades buying, building, and selling businesses. I’ve sat on both sides of valuation negotiations – as the person selling and as the person buying. And I can tell you that business valuation is equal parts science and art, with a healthy dose of negotiation thrown in.

The good news is that you don’t need an MBA to understand how valuations work. There are three core methods that cover the vast majority of SME and mid-market transactions. If you understand these three approaches, you’ll walk into any conversation with a buyer, investor, or advisor with confidence.

Method 1: Earnings multiple (the most common)

This is the method you’ll encounter most often, and it’s the one that matters most for the majority of founder-led businesses.

The principle is straightforward. Take your business’s annual profit – typically measured as EBITDA (earnings before interest, tax, depreciation, and amortisation) – and multiply it by a number. That number is the “multiple,” and it’s where all the negotiation happens.

For example, if your business generates £500,000 in EBITDA and the market multiple for businesses like yours is 5x, the indicative valuation is £2.5M.

Simple in theory. Complex in practice.

The multiple itself is influenced by dozens of factors:

Industry matters enormously. A SaaS business with recurring revenue might trade at 8-15x EBITDA. A traditional services business might trade at 3-6x. A manufacturing business might sit at 4-7x. These ranges shift with market conditions, but the relative differences between sectors are remarkably persistent.

Growth rate drives the multiple up. A business growing at 30% annually will command a significantly higher multiple than one growing at 5%. Buyers are purchasing future earnings, not just current ones. The faster you’re growing, the more those future earnings are worth today.

Recurring revenue is gold. If your revenue comes from long-term contracts, subscriptions, or repeat purchasing patterns, your multiple will be higher. Predictable revenue reduces risk for the buyer, and reduced risk means they’ll pay more.

Customer concentration pushes the multiple down. If 40% of your revenue comes from one client, that’s a risk. Buyers will either reduce the multiple or structure the deal to protect themselves against that client leaving.

Founder dependency kills value. If the business can’t function without you, the buyer is essentially acquiring a risk that you might leave, get bored, or underperform during an earn-out. This is one of the single biggest factors that suppresses valuations for founder-led businesses.

The critical thing to understand about EBITDA is that buyers will typically “normalise” it. That means they’ll strip out one-off costs, add back the founder’s above-market salary, remove personal expenses that have been run through the business, and adjust for anything that doesn’t represent the ongoing economics of the company. This can work in your favour – but only if your accounts are clean enough for someone to trust the adjustments.

Method 2: Revenue multiple

Revenue-based valuation is more common in high-growth businesses, particularly in technology and SaaS, where profitability might not yet reflect the company’s potential.

The calculation is the same as the earnings multiple approach, but applied to revenue instead of profit. If your business generates £2M in annual recurring revenue and similar companies trade at 4x revenue, the indicative valuation is £8M.

Revenue multiples are used when:

The business is pre-profit but growing fast. Many tech businesses reinvest everything into growth, so EBITDA is zero or negative. Revenue becomes the only meaningful metric.

The margin profile is well understood. If buyers know that businesses in your sector typically achieve 70-80% gross margins at scale, they can model what the profits will look like once the business matures. The revenue multiple is essentially a shorthand for expected future earnings.

The market is frothy. In bull markets, revenue multiples expand as buyers compete for growth assets. In tighter markets, they contract, and buyers revert to earnings-based valuations.

The danger of revenue multiples is that they can create unrealistic expectations. A £2M revenue business valued at 4x sounds wonderful until you realise that the buyer is assuming you’ll achieve certain margins that you haven’t demonstrated yet. If those assumptions prove wrong, the deal structure will reflect that risk – typically through earn-outs or deferred payments.

My advice: understand revenue multiples, but don’t anchor your expectations to them unless your business genuinely fits the high-growth profile where they apply. For most SMEs, the earnings multiple is a more realistic and defensible basis for valuation.

Method 3: Asset-based valuation

This is the most conservative approach, and it’s typically used for businesses where the value lies primarily in tangible assets rather than earnings power.

An asset-based valuation adds up everything the business owns – property, equipment, inventory, intellectual property, cash – and subtracts what it owes. The result is the net asset value.

This method is most relevant for:

Asset-heavy businesses. Manufacturing, logistics, property, agriculture – businesses where the physical assets represent a significant portion of the value.

Distressed situations. If a business isn’t profitable, the assets might be worth more than the going concern. A buyer might be interested in the equipment, the property, or the customer list, even if they don’t want to run the business.

Holding companies. Businesses that primarily hold investments, property, or other assets.

For most founder-led service or technology businesses, the asset-based approach will produce the lowest number of the three methods. That’s because the real value is in the earnings, the brand, the customer relationships, and the team – none of which show up on a balance sheet.

However, understanding your asset base is still important. It sets a floor for your valuation and can be useful in negotiations. If a buyer tries to push the earnings multiple down to a level where the implied valuation is below your net assets, you have a strong counter-argument.

Which method should you use?

In practice, most transactions involve elements of all three approaches:

The buyer will run an earnings multiple as their primary valuation framework. This is where the negotiation centres.

They’ll cross-reference against revenue multiples if growth is a significant part of the story, particularly in technology businesses.

They’ll review the asset base as a sanity check and to understand what tangible value underpins the business.

As a founder, your job is to understand all three methods and know which one paints your business in the best light – while being realistic about which one a buyer is likely to anchor on.

How to increase your valuation

Regardless of which method applies, there are universal levers that increase what your business is worth:

Grow the top line. Revenue growth is the single most visible signal of a healthy business. Consistent, sustainable growth – not spiky, unpredictable growth.

Improve margins. Higher margins mean more profit per pound of revenue, which directly increases your earnings-based valuation.

Diversify revenue. Reduce customer concentration, add new revenue streams, expand geographically. Diversification reduces risk, and reduced risk means a higher multiple.

Build recurring revenue. Convert one-off transactions into subscriptions, retainers, or contracts. Every pound of recurring revenue is worth more than a pound of project-based revenue.

Remove yourself. Build a management team that can run the business without you. Founder dependency is a value destroyer.

Clean up the financials. Get proper accounts prepared. Remove personal expenses. Make everything transparent and auditable. A buyer who trusts your numbers will pay more than one who doesn’t.

Document everything. Processes, systems, customer data, contracts. A well-documented business is easier to diligence, which means a smoother process and a better outcome.

The reality of valuation

Here’s something most advisors won’t tell you: a business is ultimately worth what someone is willing to pay for it. All the multiples, models, and methods are frameworks for a negotiation – not absolute truths.

Two buyers can look at the same business and come up with wildly different valuations based on their strategic rationale, their available capital, and how badly they want the deal. A strategic buyer who sees clear synergies will pay more than a financial buyer running a pure returns model.

That’s why creating competitive tension in a sale process is so important. The more buyers at the table, the more likely you are to find one whose strategic logic justifies a premium price.

But competition only helps if your business is genuinely prepared. The best valuation in the world means nothing if due diligence falls apart, if your financials can’t withstand scrutiny, or if the buyer discovers that the business is entirely dependent on you.

Preparation is valuation. Everything else is just negotiation.

Adam J. Graham is a serial entrepreneur, CEO of JustFix, and creator of Exit Mode – a course that helps founders build businesses worth buying. He has built and sold two companies, led a global public company, and now helps founders scale, systemise, and exit on their terms.

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