I regularly meet business owners who have been running a profitable business for fifteen or twenty years and have never seriously considered what it is worth. The business is their pension, their legacy, and in many cases the largest financial asset they will ever own — but they have no reliable number for it.
This matters for several reasons. If you are planning to sell, bring in a business partner, transfer the business to a family member, raise finance secured against the business, or simply do proper retirement planning, you need a credible valuation. And the earlier you have one — and understand what drives it — the more time you have to influence the number.
Why Business Valuation Is Not Straightforward
A building has an address, a square footage, and a comparable market. A share in a public company has a quoted price updated by the minute. A private SME has neither. Its value is determined by a negotiation between a buyer and a seller, informed by analysis but ultimately settled by what both parties will agree to.
This does not mean valuation is arbitrary. There are well-established methodologies and market conventions that provide the framework. But it does mean that “what is my business worth?” is not a question with a single correct answer — it is a question with a range of plausible answers depending on the method used, the buyer’s strategic objectives, and market conditions at the time.
The Main Valuation Methodologies
Earnings-Based Valuation (EBITDA Multiple)
The most widely used methodology for trading SMEs in Ireland is an earnings multiple. The starting point is the business’s maintainable earnings — typically measured as EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation), a figure we break down in our guide to how to read your profit and loss statement — and a multiple is applied to arrive at an enterprise value.
The multiple reflects what a buyer in the current market would pay for each euro of EBITDA, based on the risk profile of the business, its growth prospects, the quality of its customer base, its sector, and its size.
For small Irish SMEs — the kind of business I typically work with in County Louth — EBITDA multiples at the time of a trade sale generally range from three to six times, depending on the factors above. A business generating €200,000 of maintainable EBITDA might therefore be valued at €600,000 to €1.2 million on an earnings basis.
Businesses with higher recurring revenue, strong client contracts, diversified customer bases, and demonstrable growth trends attract higher multiples. Businesses that are heavily dependent on the owner personally, have concentrated customer risk (one client representing 40% of revenue), or operate in a declining sector attract lower multiples.
Asset-Based Valuation
For asset-heavy businesses — property, manufacturing, plant and equipment — the net asset value of the business (total assets minus total liabilities) provides a floor valuation. No rational buyer will pay less for a business than the liquidation value of its assets.
For most service businesses and trades businesses, the asset base is thin relative to the earnings potential. Valuing these businesses on an asset basis significantly understates their value — which is where goodwill comes in.
Revenue Multiple
For certain sectors — professional services, technology, media — revenue multiples are sometimes used instead of or alongside earnings multiples, particularly for businesses that are loss-making or pre-profit. A revenue multiple makes more sense where the business model is proven but profitability is deferred (for example, a software-as-a-service business that is investing heavily in growth).
For most Dundalk trades and professional services businesses, revenue multiples are less relevant than earnings multiples.
What Is Goodwill?
Goodwill is the excess of the purchase price paid for a business over the fair value of its identifiable net assets. It represents everything the business has that is valuable but cannot be specifically identified and separately valued — the customer relationships, the brand reputation, the staff knowledge, the operational systems, the supplier relationships.
For an accountant’s practice, a plumbing business, a pharmacy, or a solicitor’s firm, the goodwill element of the value may be the largest component of the total purchase price. The tangible assets — equipment, stock, furniture — may be worth relatively little. The customer base, the recurring fee income, the reputation built over decades — these are what the buyer is actually paying for.
Goodwill appears on the balance sheet of a company that has acquired another business, as the amount paid above net assets. It does not appear on the balance sheet of the business that built it organically — a business that has developed its own customer relationships over twenty years will not show that goodwill as an asset in its accounts, even though a buyer would pay for it.
What Reduces Business Value
Understanding the discounts that reduce value below the theoretical maximum is as important as understanding what creates value.
Owner dependency is the most common value depressor in Irish SMEs. If the business is genuinely Paddy’s business — if customers buy from Paddy specifically, if Paddy holds all the key relationships, if the business would materially decline without Paddy’s personal involvement — a buyer will pay significantly less than they would for a business with equivalent earnings but a management team capable of running it independently.
Reducing owner dependency — by building a team, systematising processes, transitioning key customer relationships from the owner to the business — is one of the highest-return things a business owner can do in the years before a planned exit.
Customer concentration — where one or two customers account for a disproportionate share of revenue — creates risk for a buyer. Losing a customer representing 40% of turnover after the acquisition changes the business fundamentally. Buyers discount heavily for this risk.
Undocumented earnings — cash income, undeclared revenue, personal expenses run through the business — create a problem at sale. If earnings cannot be demonstrated from the accounts, they cannot be valued. The discipline of accurate, complete accounts — ideally supported by a regular management accounts pack — pays off at the point of sale.
Lease or contract exposure — key commercial leases with unfavourable terms, supplier contracts with change-of-control clauses, or customer contracts that are personal to the owner and not assignable — all reduce value.
Planning for the Number You Want
If you have a target sale value in mind — whether that is to fund retirement, support a family transfer, or simply know the business is worth what you think it is — the time to start planning is well before the sale.
The variables that drive valuation — maintainable earnings, customer diversification, owner dependency, contract quality, management depth — are all things that can be worked on over time. A business that has been actively managed with an exit in mind for five years will typically achieve a significantly better multiple than one that is sold reactively when the owner decides it is time to go.
If you have never had a realistic assessment of what your business is worth, a conversation with your accountant is the starting point. Not a formal valuation with a signed report — that can come later. A working discussion of what the business’s earnings are, what the key value drivers and depressors are, and what a realistic range of outcomes might look like. For more practical financial guidance, explore our accounting and compliance guides.
Paddy Malone FCA AITI
Paddy is the principal of Malone & Co. Chartered Accountants in Dundalk. A Fellow of Chartered Accountants Ireland and a Chartered Tax Consultant with the Irish Tax Institute, he has been advising businesses across County Louth and the North-East for over 35 years.