Your Accountant's Valuation Is Almost Certainly Wrong (And Why It Matters)

Advised by Leo Meggitt, Managing Director, Mastella Advisory. Last updated August 2026.

An owner we spoke to last month had a valuation from his long-standing accountant putting his UK services business at £6M. He was ready to accept an inbound offer at £7M and mentioned the meeting almost in passing. When we ran the analysis, the business had characteristics (recurring revenue mix, sector consolidator activity, sub-sector scarcity) that put credible market range at £14M to £18M. He nearly sold at less than half what a structured process would have produced.

This is not a rare pattern. UK owners consistently walk into sale processes anchored on accountant-produced valuations that under-price good businesses by wide margins. The accountants are not wrong on their own terms. They are answering a different question. This article explains what that question is, why it produces different answers from the market, and what an owner should look at instead when thinking about what their business is worth.

Two different questions

Accountancy valuations answer the question: "What is this business worth using an established, defensible methodology, applied consistently, for a purpose where a specific number is required?" That purpose is usually one of: HMRC-facing tax valuation, share scheme grant-price setting, matrimonial or probate valuation, statutory financial reporting, or intra-family transfer.

Market valuations answer the question: "What would a real buyer pay for this business today in a competitive process?" That number reflects what specific buyers are actually deploying capital for, in your specific sub-sector, at your specific size, under current market conditions.

These are different questions and the correct answers to them can be dramatically different numbers. Neither is "right" or "wrong"; each is appropriate for a specific purpose. The problem arises when an owner uses the answer to the first question as the basis for a decision that should be informed by the answer to the second.

Why accountancy valuations typically under-price

Accountancy valuations for owner-managed UK businesses typically use one of three approaches:

Asset-based valuation

Net asset value: tangible assets minus liabilities, sometimes with intangibles added back at conservative values. Appropriate for asset-heavy businesses in wind-down or for statutory reporting. Almost always dramatically under-prices trading businesses with real earnings and growth. A profitable UK services business trading at 6 to 10x EBITDA has almost no relationship to its net asset value; the accountant's number based on net assets alone would be a fraction of the market number.

Earnings-based with a generic multiple

Adjusted earnings (usually PBT or EBITDA) multiplied by a "reasonable" multiple, often 3 to 5x for private businesses. This is the most common approach for HMRC-facing valuations of shares in owner-managed companies, and it is where the systematic under-pricing sits. HMRC guidance (particularly for share-scheme purposes) discounts private-company valuations heavily for lack of marketability and lack of control, applying multiples that in many cases sit meaningfully below what an active buyer pool would pay.

The 3 to 5x range accountants often use may be defensible for HMRC, share-scheme, or matrimonial valuations where a court or tax authority requires a conservative, generic approach. It is meaningfully below current UK lower mid-market transaction ranges, which typically sit at 5 to 12x adjusted EBITDA depending on sector.

Rules of thumb and industry heuristics

"Accountancy practice x 1.2 times gross fees." "Recruitment firm at 4x NFI." These rules exist for a reason but they are static and generic. They do not reflect current buyer competition, sector consolidation cycles, or the specific characteristics that separate top-of-range from median outcomes in a given niche. An accountancy practice with strong recurring fees and PE-consolidator buyer interest in 2026 trades meaningfully differently from the same practice against the historical 1.2x rule.

How buyers actually think about what your business is worth

Buyers value businesses using two frameworks running in parallel: comparable transaction multiples and DCF (discounted cash flow). Both look at the underlying earnings and cash generation, but they arrive at value by different routes.

Comparable transaction multiples

The dominant framework for UK lower mid-market M&A. Buyers look at recent transactions in the target's specific sub-sector, at similar size, involving similar buyer types, and apply the observed multiple range to the target's adjusted EBITDA. The multiple range moves based on:

• Sector. Healthcare services (dental, vet, mental health) currently 8 to 12x EBITDA at UK lower mid-market. Tech-enabled services wide range: 6 to 12x for services, ARR-based multiples on SaaS/platform components. Professional services 5 to 10x. Business services 5 to 9x. Light industrials 5 to 8x. Logistics 5 to 10x by sub-segment. Sector consolidator activity moves these ranges over time.
• Growth rate. Businesses growing consistently at 15%+ year-on-year attract premium ranges within any sector.
• Recurring revenue mix. Recurring/contracted revenue trades at a premium (often 1 to 2 turns of multiple) to project revenue.
• Customer concentration. Low concentration commands premium; high concentration discounts even where relationships are deep.
• Management team depth. Buyers pay a premium for businesses that can operate without the founder; discount for high founder dependency.
• Buyer competition. The number and appetite of active buyers in the current cycle moves multiples materially. Sectors with active PE consolidator interest currently sit at higher ranges than sectors with thinner buyer pools.

These variables mean the same business can attract a 2 to 4 turn range of EBITDA multiple depending on how the process is designed and which buyers are engaged. A generic 3 to 5x "private company" multiple ignores all of this.

DCF (discounted cash flow)

Buyers, especially PE, run parallel DCF models to sanity-check multiple-based valuations. DCF projects the free cash flow the business is expected to generate over 5 to 10 years, discounts it back to present value at the buyer's required rate of return, and adds a terminal value. Where DCF and comparable multiples produce meaningfully different values, buyers investigate the reasons. DCF is a check, not typically the primary basis for a bid.

The compound effect: what actually drives premium vs discount

Within any sector's multiple range, what moves an individual business from the median to the top of the range (and vice versa) is not a single factor. It is the compound effect of a small number of structural characteristics that buyers care about:

• Recurring revenue mix (proportion contracted forward)
• Customer concentration (top-client percentage, contract tail on top 20)
• Growth trajectory (consistent multi-year, or declining)
• Management team depth and founder dependency
• Financial reporting quality (defensible EBITDA bridge)
• Sub-sector positioning (specialist vs generalist)
• Sector-specific structural items (accreditations, IP, technology stack, contract structure)

Businesses with strong scores on the first six items typically print in the top quartile of the sector range. Businesses with weaknesses on multiple items typically print at the median or below. This is why pre-sale readiness work (see our 12 months before you sell guide) so consistently changes outcomes.

Talk to us

If you have received an accountancy valuation and want an independent view on what a competitive market process would produce for the same business, book a 45-minute confidential conversation. We share indicative market ranges with the reasoning behind them, at no charge as part of an exploratory conversation.

Why a valuation exercise is not the same as a market process

An indicative market range is a useful data point. It tells the owner roughly what the business would sell for in a well-run process, given current buyer conditions. It does not, on its own, produce that outcome.

The gap between the indicative range and the realised outcome is closed by the process itself. Three things determine whether an owner captures the top or the bottom of the range:

1. Buyer pool composition. Reaching the right buyers, in the right numbers, in parallel. Missing key buyers (typically the overseas strategics and specialist consolidators that generic broker networks do not reach) leaves value on the table by definition.
2. Competitive process discipline. Managing a structured process that keeps multiple credible bidders engaged through key decision points. Bilateral negotiation with a single buyer, even a good one, consistently produces worse outcomes than a genuine competitive process.
3. Non-price negotiation. Structuring terms (cash proportion, earn-out, rollover, working capital mechanism, indemnity caps, restrictive covenants) that protect the seller's realised net proceeds. Owners frequently over-focus on headline price and under-focus on structural terms that materially affect what they actually receive.

A valuation exercise (accountancy or market) is a starting point. The process is what determines the outcome. Owners who anchor decisions on the accountancy number without ever running a proper process routinely accept prices that under-value their business by 30 to 100% of what a real process would produce.

Where accountancy valuations are the right answer

To be clear: accountancy valuations are the correct approach for a range of purposes. Do not disregard your accountant's number for the purpose it was produced. Specifically:

• HMRC and tax valuations. Share-scheme grant prices, s423-related valuations, matrimonial and probate valuations all require the specific methodologies HMRC expects. Use an accountancy valuation.
• Statutory financial reporting. Impairment testing, business combinations under FRS 102 or IFRS 3, deferred consideration accounting. Accountancy approach is required.
• Intra-family transfers at conservative values. Family succession planning frequently uses conservative valuation approaches for tax-efficient transfer of shares to next generations. Accountancy valuations align with these objectives.
• Baseline sense-check for owners a long way from any sale. An accountancy number is a reasonable "am I in the right ballpark" reference for owners 5+ years from any sale who just want an order-of-magnitude view.

Where the number matters is for owners who might actually sell within the next 24 months. That is the point at which the difference between "generic 3 to 5x private company multiple" and "current sub-sector transaction range" can be several million pounds of realised outcome.

How to get an indicative market range

Three routes, in ascending order of quality:

1. Published sector reports. Some sector-specific M&A commentary is published by advisors, industry bodies, or trade press. Useful for a rough directional sense but rarely specific to your situation.
2. Buyer-side hearsay. If you have industry connections who have recently sold, their headline numbers are useful anecdotal reference points. Beware of survivorship bias and of "headline vs realised" gap.
3. Advisor first conversation. A senior M&A advisor with active work in your sub-sector can typically give an indicative range in a 45-minute conversation, based on current transactions they have seen, active buyer appetite, and the specific characteristics of your business. This is the highest-quality signal and is typically available at no charge as part of an exploratory conversation. Our company valuation service explains what we look at.

The practical upshot for owners

If you are 12 to 24 months from a potential sale, treat your accountant's valuation as one data point among several, appropriate for the purposes it was produced for. Get a market-based view from someone who works in current UK lower mid-market M&A in your sector. Understand the gap between the two, and the reasons for it. Then decide whether the market outcome, run properly through a structured process, matches what you want your exit to look like.

The owner who nearly sold at £7M eventually completed at £16M through a structured process across the specific PE consolidator pool active in his sub-sector. The accountancy valuation was internally correct for the purpose it was produced. It just was not the number to use for a sale decision.

If you want an indicative market range for your business, book a 45-minute confidential conversation. Forty-five minutes, no obligation, and you will leave with a specific range and the reasoning behind it. Compare it with your accountant's number and see what the gap tells you.