Learn
Is a business worth 3 times profit? Same profit, very different price
Fractional FD/CFO, FD/CFO of the Year 2019 (British Accountancy Awards).
Written up from his video by Own Your Numbers. Published 28 September 2026.
It can be, but three times profit is not a fixed rate.
In Ciaran O'Donnell's experience, businesses are sometimes bought for anywhere between two and six times profit. Where you land depends on what a buyer finds in due diligence: the customers, the quality of earnings and the quality of the financials. Pushing for the top of that range starts years before a sale.
In this Beach Talk, Ciaran compares two businesses bought by the same private equity firm. Their profits were about the same. The prices were not.
Two businesses, the same profit, 3x and 6x
Ciaran's own round figures from the talk.
His client: profits of around £1 million, sold for around £6 million, about six times profit, with a little extra for working capital.
A competitor bought by the same firm: profits of around £1 million, sold for £3 million, three times profit, despite having almost three times as many customers.
Ciaran's client had a real focus on its customers, strong quality of earnings, a clear way of acquiring customers, accountability, and good-quality financials, and everything that went through due diligence reinforced that. That put it in a strong position when it came to negotiating the price.
The competitor accepted the valuation it was offered, and it had a much larger customer base. On Ciaran's rough reckoning, run the way his client was run, it could have been making £3m to £4.5m of profit and looking at a valuation of £18m to £20m, rather than the £3m it sold for.
What sets the multiple
Sale prices are based on a spread of multiples, two to six times profit in Ciaran's experience, and you always want to be pushing for the higher end. Ciaran's list of what due diligence tested at his client, and found strong, is a good checklist of what a buyer looks at under the bonnet:
- Focus on customers, and how the business acquires them.
- Quality of earnings.
- Accountability.
- Quality of the financials.
When to start preparing
It is too late to start once you are in the negotiation. You cannot suddenly move a business from a three million pound valuation to twenty million at the point of sale. In Ciaran's words, it starts today, or better, five years ago. You may have no plans to sell in the next twelve months, and there is no rush. But it is worth knowing what your business is worth today and what you would want to be offered one day, so the offer reflects what you have built.
A weekly view of cash
Quality of financials is on Ciaran's list, and it starts with knowing your own numbers: how to read a balance sheet is a good place to begin. Own Your Numbers will not value your business, but it gives you a weekly, read-only view of the cash side from Xero: net cash, your cash cushion in months, and what customers owe you.
Business valuation questions, answered briefly
Is a business worth 3 times profit?
It can be. In Ciaran O'Donnell's experience, businesses are sometimes bought for anywhere between two and six times profit. In his example, two businesses with around £1 million of profit sold for about three and about six times profit. Ciaran highlights his client's customer focus, quality of earnings and quality of financials as strengths during due diligence.
How is a small business valued?
In Ciaran's example, as a multiple of profit, with a little extra for working capital. The multiple a buyer will pay depends on what due diligence finds: customer focus and acquisition, quality of earnings, accountability and the quality of the financials.
When should I start preparing my business for sale?
Ciaran says preparation starts today, ideally years before a sale. His warning is that a business cannot suddenly move from a £3 million valuation to £20 million when sale discussions begin.
Why would a buyer pay a lower multiple?
In Ciaran's example a competitor with almost three times as many customers still sold for three times profit, and his reading is that it had not been run the way his client was. Customer numbers alone did not earn a higher multiple.
14 days free · no card · read-only.