Most owners of established businesses know roughly when they’d like to stop. Fewer have a plan for what the business will look like on that day.
Almost none have asked the harder question. What would somebody actually pay for it, and why?
Preparing your business for exit or succession starts with what a buyer, a management team or the next generation will scrutinise. Owner dependence is the biggest discount they apply, and there is an order to fixing things.
Most owners consider three exits. Cash out into assets, sell, or pass it on. They’re the same piece of work seen from three angles.
One thing plainly, up front. Valuation, tax and deal structure belong with an accountant, a solicitor and, where the numbers justify it, a corporate finance adviser. We’re none of those, and this article gives no tax, legal or financial advice.
Our work as a business coach in Liverpool sits upstream of those conversations. We get the business into a state where they go well.
What a buyer actually looks at
Owners value their business on turnover, reputation and years of effort. Buyers value it on risk.
Every item on their due diligence list comes back to one question. How confident am I that the profit will still be there in three years, once you’ve gone?
The table sets out the six areas that come up in almost every sale, succession or management buyout. Alongside each is what it tells the person on the other side of the table.
| What they scrutinise | The question behind it | What a strong answer looks like |
|---|---|---|
| Recurring revenue | How much of next year’s income is already spoken for? | Contracts, retainers, service agreements and repeat orders you can evidence |
| Margin | Is the profit real, and is it stable? | Gross and net margin that hold across three years and are understood by the team |
| Customer concentration | What happens if the biggest account leaves? | The largest customer under 15–20% of revenue, and a spread beneath them |
| Documented systems | Does the business know how it works, or does the owner? | Written processes for sales, delivery, finance and hiring that people actually use |
| A management layer | Who runs this on a Tuesday if the owner is away? | Named people with real authority over operations, sales and money |
| Clean numbers | Can I trust what I am being shown? | Timely management accounts, reconciled books, personal costs separated from business costs |
The 15–20% concentration figure is a rule of thumb from our own experience. Some sectors tolerate more. Either way, a buyer will find the number and price the risk.
Owner dependence is the discount that swallows the others
Of the six, one dominates.
Say the sales relationships, the pricing decisions, the technical judgement and the sign-off on every invoice all run through you. Then the buyer is really being offered a job. With the added risk that the person who made it work is leaving. They price accordingly.
The UK marketplace BusinessesForSale.com puts it plainly in its guide to valuing a business: “If operations, processes and employees are too reliant on an owner, a company’s value can decrease.”
In practice that shows up three ways. The multiple applied to your profit comes down. More of the price is deferred into an earn-out, so you’re paid over time on results you no longer control. And the buyer asks you to stay on for one, two or three years to hand over what only you know.
So the exit you planned arrives later than the date on the contract.
The same logic applies inside a family or a management team. A daughter taking over a business that only works when her father is in the building inherits a set of problems with the shares. A management team borrowing to buy the company out will get exactly the same questions from their lender as a trade buyer would ask.
Here’s the everyday test. Can you take two clean weeks off, phone switched off, and come back to the business in the same shape you left it? If the honest answer is no, that’s the discount. You can see it from here.
How established businesses get valued
There’s no single formula. Anybody who gives you a number without opening your accounts is guessing.
The British Business Bank’s guide to valuing a business lists a range of methods: asset valuation, discounted cash flow, comparable analysis and precedent transactions. Where a private company is benchmarked against listed peers, it notes a discount is common. It puts that in the region of 30% to 50%.
For an established business with a team of five to fifty, the conversation usually comes down to a multiple of earnings. The BusinessesForSale.com guide describes two versions.
The first is a multiple of EBITDA: earnings before interest, tax, depreciation and amortisation. It’s adjusted for one-off items, and for anything the business pays that a new owner would stop paying.
The second is seller’s discretionary earnings, or SDE. The guide recommends it for businesses run by their owner. It adds back the owner’s salary and benefits to show what the business would earn for whoever runs it next.
Two things follow. The adjustments matter, and they’re only credible if the underlying numbers are clean. And the multiple moves with risk. Two businesses with the same adjusted profit can attract very different multiples, and the six items in the table are most of the reason why.
Multiples vary by sector, size and buyer. So we leave the figure to your accountant or a corporate finance adviser, who will have current comparables. That’s their job, and it’s worth paying for.
The tax picture in 2026, in outline only
Tax changes what an exit is worth to you personally, and it has moved in the last two years. Here is a summary of published government guidance, for context. Applying it to your circumstances is your accountant’s job.
HMRC’s guidance on Business Asset Disposal Relief sets the rate on qualifying gains at 18% for disposals from 6 April 2026. It was 14% in the 2025–26 tax year and 10% before that.
To qualify on a share sale, two conditions apply for at least two years before the disposal. You’ve been an employee or office holder of a trading company. And, for a personal company, you’ve held at least 5% of the shares and voting rights.
The relief has a lifetime limit of £1 million of gains for disposals on or after 11 March 2020, as set out in HMRC’s Capital Gains Manual.
Inheritance tax has changed too, which matters if you plan to pass the business on. The government’s summary of the reforms to Business Property Relief sets out the change from 6 April 2026. A new £1 million allowance applies to the combined value of property qualifying for 100% relief. Qualifying value above that gets relief at 50%.
Say your family business was expecting to pass to the next generation with little or no inheritance tax. That’s a material change. Raise it with an adviser early.
The common thread is lead time. The two-year qualifying period for Business Asset Disposal Relief and inheritance tax planning both reward owners who start early. A tax adviser can only work with the structure you already have when you walk through the door.
Three routes, one move
Our six-step approach with owners ends, deliberately, at a fork. Once the business makes strong profit and runs without you, there are three places to take it. Draw cash out into assets that sit outside the business. Sell it. Or pass it on to family or the management team.
Owners often treat these as three separate decisions for later. In practice they’re the same move.
Each one needs a business that produces profit independently of your daily effort. That’s what makes it worth buying, worth inheriting, or worth keeping as an asset while you do something else. The work is identical. Only the name on the shares at the end changes.
You can choose the route in year three or four. The preparation starts now.
Succession gets a specific mention, because it’s so common in the North West and so often left unplanned. Family Business UK reports that 93% of private firms in the UK are family businesses, employing 15.8 million people.
Handing one on carries every question a trade buyer would ask, plus a few of its own. Who in the family actually wants to run it. What the non-working siblings are owed. How the outgoing owner gets paid. A business that has answered the buyer’s questions has done most of the work on these.
What to fix first
Order matters. Owners who start with a valuation and work backwards spend a year polishing a figure. Then it changes the moment they fix the underlying business. This is the sequence we use.
- Get the owner out of operations. List every decision that needs you today. Then remove yourself from them one at a time, most frequent first. It’s slow, uncomfortable, and the highest-return work in the whole programme. It’s the core of our one-to-one business coaching, because it usually needs somebody outside the business holding the owner to it.
- Clean up the numbers. Monthly management accounts within two weeks of month end. Personal spending separated from business spending. Margin visible by product or service line. A cash forecast you believe. A buyer’s adviser will rebuild your figures anyway, so give them something that survives the rebuild.
- Build a management layer. Named people running operations, sales and finance day to day, with the authority and information to decide well. In a fifteen-person firm this may be two people. It still counts.
- Document the systems. Once other people are doing the work, write down how it’s done. How a lead becomes a customer. How a job is delivered and invoiced. How a new person is hired and trained. Documentation written before the management layer exists describes how the owner does things. That’s the wrong manual.
- Spread the customer base. Grow the accounts beneath your largest customer, on purpose, until losing any single one would be painful and survivable. This is a sales and pricing job, and it takes a couple of years to show in the figures.
- Then have the valuation conversation. With three years of clean, stable, owner-independent numbers behind you, sit down with your accountant. If the size warrants it, bring in a corporate finance adviser too. Now their advice lands on a business worth advising on.
Preparing for exit or succession takes three to five years
The sequence sets the timescale. Buyers and lenders look at a three-year track record, so every improvement has to sit in the numbers long enough to count.
Management teams take time to become properly capable. Customer spread is earned one account at a time. And the two-year qualifying period for Business Asset Disposal Relief means the ownership structure needs to be right well before any deal.
Then add the sale itself. BusinessesForSale.com’s guide puts that at six to nine months on average, and sometimes years.
The numbers point one way. Start before you want to leave, ideally three to five years before. Owners who begin when they feel ready to go usually end up choosing between a lower price, a longer handover, or both.
It can happen faster when the foundations are already strong. Katy Davies, who owns Host So Simple, worked with us on exactly this kind of preparation. She achieved a seven-figure exit within 18 months, with the business acquired by Host & Stay in 2023.
That business had real recurring revenue and a clear market, and Katy did the work between sessions. Individual results vary. Most owners should plan on the longer timescale.
Where do you stand today?
If you’re within five years of wanting to step back, score your business honestly against the six items in the table. Then take the two-week test. Those two things tell you where you stand, and they cost nothing.
Working through the sequence is what our business coaching is built around. 1-2-1 business coaching runs from £250 to £2,500 +VAT a month, depending on how often we meet.
If the honest conclusion is that you should speak to your accountant first, we’ll tell you so. The first step is a free review of the business and what it pays you personally. Book your free business review.
Sources: HMRC guidance on Business Asset Disposal Relief (gov.uk) and HMRC Capital Gains Manual CG64125; HM Treasury and HMRC summary of reforms to Agricultural Property Relief and Business Property Relief (gov.uk); British Business Bank, “How to value a business”; BusinessesForSale.com guides to valuing and selling a business; Family Business UK. This article is general information and gives no tax, legal or financial advice.
Luke Kay owns ActionCOACH Liverpool and is an award-winning business coach in Liverpool, working with established businesses on profit, systems and team.
