The million dollar question with no simple answer.
The easy response would be to state that the valuation of your business is worth a standard multiple of earnings or adjusted profits. However the right answer, that we must face up to, is that your business is worth what someone is prepared to pay for it.
Motives and not multiples determine value. The issue is more about negotiation than valuation.
Often quoted is a multiple of 6 or 7 times adjusted operating profit (that is operating profit after making adjustments for the profitability of the company under new ownership and after corporation tax).
The reality is that the valuation of your business may be worth much less than the above or much more. On average we find that the difference between the highest bidder and the lowest bidder is 2.5 times. The reason for this is that they are buying with different motives. A strategic buyer is likely to pay a higher price than a return on investment buyer.
Your objective must be to put yourself in the best possible negotiating position and that means having a choice of buyers. It also means being well prepared for the negotiation.
We wish there was an easy answer to this question but the truth is that there isn't one. Any other advice is seriously flawed and could result in you significantly underselling your business.
Traditional company and small company valuation based simply on return on investment makes an assumption that nobody will pay a premium for your business. This may be true but it is a very premature assumption.
However be careful not to limit your aspirations.
