How to price a business for sale

A business is priced on what a buyer can earn from it, not on what it cost the owner to build: a multiple of its normalised earnings or revenue, set by what comparable companies have sold for, then adjusted for the cash, debt and working capital that come with it. For a fintech the multiple depends on growth, recurring revenue and the licence; the arithmetic below shows how each moves the number.

Owners price from the inside — the years, the investment, the plan for next year. Buyers price from the outside: what the business earns now, how surely it will keep earning, and what similar businesses have fetched. The gap between the two is where most sale processes fail. This guide walks through the buyer's method, so that the asking price is the one a buyer can defend to its own board.

What is a business worth to a buyer?

What it will earn for them, discounted for risk. Every method comes back to that: a multiple of earnings is a shorthand for future cash flow, a discounted cash flow model is the long form, and an asset-based value is the floor for a business that earns nothing. A buyer does not pay for the founder's effort, the money spent on the platform, or the plan — only for the earnings those things produce, and for how confidently they can be expected to continue. A business with £2m of profit that has grown 30% a year for three years on contracts with five-year terms is worth several times one with the same profit, flat growth and month-to-month customers.

Which multiple should I use — revenue or EBITDA?

EBITDA if the business is profitable and mature; revenue if it is growing fast and reinvesting everything. A profitable payments processor is priced on EBITDA — 8 to 15 times, depending on growth and scale — because its profit is what a buyer will own. A software or fintech company growing 40% a year with no profit is priced on annual recurring revenue, at 3 to 8 times, because its profit is deliberately zero and its revenue is the measure of what it is building. Use the one your buyers use: look at the last five transactions in your sector and note which metric the price was quoted against.

How do I work out my EBITDA the way a buyer will?

Start from operating profit, add back depreciation and amortisation, and then normalise: remove one-off costs and income, restate the owner's salary to a market rate, and take out anything the buyer will not inherit. Buyers then subtract what the accounts left out — capitalised development costs are the usual one in fintech, where engineering is treated as an asset and never touches EBITDA. A company reporting £3m of EBITDA that capitalises £1.2m of development a year is a £1.8m business to a buyer who will have to keep paying the engineers. Do that adjustment before the buyer does, and the price you ask for is one the diligence will confirm.

What multiple will my business get?

The sector's range, moved by four things. Growth: a business growing 30% a year sits at the top of the range, one growing 5% at the bottom. Recurring revenue: contracted, subscription or embedded revenue is worth more per pound than transactional or project revenue. Concentration: a customer worth more than 15% of revenue costs a turn of the multiple, because the buyer prices the risk of losing them. Scale: below about £1m of EBITDA, multiples fall sharply, because the pool of buyers shrinks to those who can integrate rather than run the business. A licence — an e-money or payment institution authorisation that a buyer would otherwise spend a year obtaining — adds to the multiple for the right buyer and nothing for the wrong one.

Is the price the same as the cheque I receive?

No. The multiple gives enterprise value; what the shareholders receive is enterprise value plus the cash in the business, minus its debt and debt-like items, adjusted for working capital against a normal level. Deferred revenue, unpaid tax, accrued bonuses and deferred consideration on the business's own past acquisitions all count as debt-like and come off the cheque; cash that customers own — safeguarded funds, client money — is not the company's and does not go on. A £20m enterprise value with £1m of cash, £2m of debt and £500,000 of accrued liabilities is an £18.5m cheque before any earn-out or escrow.

How much of the price will be paid later?

In most fintech sales, some. Buyers bridge the gap between their price and the seller's with an earn-out — a further payment if revenue or EBITDA reaches a target over one to three years — and hold 5–15% of the price in escrow for 12–24 months against warranty claims. A headline of £25m might be £17m at completion, £3m in escrow and £5m of earn-out; the seller should price the deal on the £17m it is sure of and the probability of the rest. An earn-out on a metric the buyer controls after completion is worth less than one on a metric the sellers still influence.

Should I get a valuation before going to market?

Yes, but for the right reason: to know the range and to find the adjustments a buyer will make, not to set a number to defend. A corporate finance adviser will price the business on three methods, show where it sits in the range for its sector, and — more usefully — list the twelve things in the accounts that a buyer will use to negotiate down. Fixing those before the process starts is worth more than any argument during it. The final price is set by the buyers who turn up, and a competitive process with three bidders moves the number more than any valuation report.