The expensive pound

You’ve spent the last two years adding a few hundred thousand to the bottom line.

You hired new people, developed a new business model and implemented a new system that took longer to bed in than expected. Some of it worked, some of it didn’t and much of it cost you time away from home you will not get back.

Well - here’s the part that should irritate you.

That extra profit, the hard-won kind, is valued at exactly the same multiple as every other pound in your business. The market couldn’t care less that it was difficult and it’s not interested that you earned it the slow way. The market prices the whole lot the same.

You got no premium for all the extra effort and you never will.

You built it or you bought it.

In a business of your size, close to all of it is the built kind. That is simply how owner-led businesses grow in value and it is the harder route. It is also, pound for pound, the most expensive way to acquire earnings.

Obviously, the cost doesn’t show up in your accounts, which is exactly why it goes largely unnoticed. It shows up in years that have gone by, in new hires that didn’t work out, or in the strategic thinking and execution you never got around to doing - because you were so wrapped up in the operations of growing your business organically.

You’ve probably never priced that. Almost nobody does and without a price on it, there’s nothing to compare the alternative against.

In the first half of 2026, 102 advisory firms working in the UK and Ireland mid-market reported on the deals they had actually completed. The pattern in the numbers is pretty clear.

A business making around £200,000 of profit changed hands at about 3.6 times earnings. A business making £10 million of profit changed hands at about 8.2 times.

Yes - there are other factors that affect the multiple.

But the market is not pricing how hard the profit was to earn. It is pricing the size of the entity that earns it - and everything else that typically comes with that.

Which means the pound of profit sitting in a smaller business down the road from you is changing hands at less than half the multiple that same pound commands inside a much larger business. You buy it at the seller’s multiple. If you do the next part properly, you hold it at the multiple of the bigger business you are building.

I have written before that bigger does not automatically mean better. That still stands and this is not me arguing the opposite. But the data shows that buyers generally pay more per pound of profit for a larger business. And of course, a quality, well-run business will likely make a good offer an even better one.

The obvious objection is that buying a business is riskier than building one. As a flat statement that’s wrong, because the risk isn’t in the buying, but in the twelve months after the deal is done.

Here’s how the value can evaporate. You buy a business whose customers were loyal to its owner and the owner leaves - within a year, a meaningful share of those customers have quietly drifted away. Or you buy a business that couldn’t run without its owner and you become the owner it can’t run without. Meaning you’ve bought a second job at a premium price.

Or most common of all, you buy three good businesses and never actually maximise the shared opportunity. That doesn’t mean you have to join them all together. I’ve seen plenty of acquisitions fail because the identity of the acquired companies got diluted or messed about with for no good reason.

Acquiring other companies and building a group is not just about automatically achieving a higher multiple. There will be several ways to create value within the group that will be specific to your own business. That might be exploiting something that one business does really well and sharing best practice across the group. Or winning bigger contracts with higher margins through having greater capabilities and having new customers.

And let’s face it, a buyer will not generally pay 8.2 times for a holding company with three small businesses sitting inside it. If you leave it to a buyer to create all the value and exploit the synergies from a group, they will expect more of that bigger multiple for themselves for doing all the work.

One more thing from the same data.

Deals below £2.5 million fell from 42 percent of transactions to 32 percent.

And deals above £10 million rose from 15 percent to 19 percent.

Across the mid-market as a whole, the average number of serious buyers per business for sale rose to 8.5 in the first half of this year, up from 7.9 a year earlier.

Demand hasn’t gone away - but my reading is that the money is concentrating where the scale is.

If your plan is to sell a business of your current size in five years’ time, that is the market you are planning to sell into. It is getting smaller as a share of deals done. While at the other end, bigger businesses and groups of companies are more in demand.

Don’t go looking for a business to buy this week. Do something much smaller first.

Take the last £250,000 of new profit you added to your business and work out what it cost you. Not the investment, but the build price. In other words, how many months it took, how many people you hired to get there, how much of your own time went into it - including evenings and weekends.

Write those things down. When you buy profit, you pay in money. When you build it, you pay in money, time - and in yourself. Until you’ve written it down, every acquisition looks expensive, because you’re comparing it against nothing.

You will keep building profit the hard way - and you should. But once you know what your own pound costs to make, you can put that number next to what a smaller business in your sector would cost to buy.

All the best,

Gavin

P.S. If you’ve been building profit the hard way and want to explore growing through acquisition - Book a call with me here.

Deal data from a half-year survey of 102 UK & Ireland advisory firms, published August 2026.

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