Your accountant did their job. That's the problem.

Count how many emails you got last year about the tax changes coming in April.

From your accountant, your solicitor or your bank. And maybe from two or three firms you’d never heard of before.

All of them explaining, carefully and correctly, that Business Asset Disposal Relief (BADR) was changing and what that meant for you.

BADR (formerly known as Entrepreneurs’ Relief) is a relief against an individual's capital gains tax. It applies when you personally dispose of a qualifying business interest - shares in your trading company, or an unincorporated business you've run for at least two years.

Now count how many emails you got from the same guys about your valuation multiple.

I would guess the number you received was close to zero.

But the gap between BADR and your multiple is not a small one.

The relief they wrote to you about is worth, at its absolute maximum, £60,000. Not per year, but in your lifetime. The relief only applies to the first £1 million of qualifying gains you ever personally make in your lifetime and in April it got less generous. So £60,000 is the ceiling whether your business is worth £3 million or £30 million.

The thing that none of them mentioned was your valuation multiple. On a business making £1.5 million of EBITDA, moving that multiple by a single turn is worth £1.5 million.

Twenty five times more, and not one email or letter about it.

It would be easy but unfair to turn this into a complaint about professional advisers.

But everyone is just doing their job and staying in their lane. Your accountant is paid to keep your tax bill correct and your filings clean. They would have been failing you if they’d stayed quiet when the rate moved. Your solicitor watches your contracts. Your bank watches your covenants. Every one of them did exactly what you engage them to do, and I'm sure they did so competently.

The issue is not that anyone was asleep at the wheel. It’s that the most valuable number in your business doesn’t sit inside anybody's remit.

Tax has a rate, a deadline, a form and a person whose job it is to tell you about it. Your multiple has none of those things. It just sits there, but has a significant impact on what your business is worth.

What this means is that by default - this “job” belongs to you. And most owners have never really picked it up.

Let me put them side by side, because the scale tends to surprise people.

When, as an individual, you sell your shares you pay Capital Gains Tax on the gain. For most owners at this level that is charged at 24%. BADR is not a separate scheme or a rebate. It is a discounted rate of that same tax, applied to the first £1 million of gain you make in your lifetime.

Until April, that discounted rate was 14%. Ten percent below the main rate, on up to £1 million of gain. Worth £100,000.

Since April the discounted rate has been 18%. Six percent below the main rate. Six percent of £1 million is £60,000, and that is now the ceiling, for life.

Of course, there may be no tax to pay at first, depending on how your tax advisor has structured everything beforehand.

And to state the obvious - I am not your tax adviser and none of this is tax advice. But that’s the point. The person who is responsible for your tax affairs may already have written to you about the £60,000.

So what about the multiple?

A buyer does not typically value your business on turnover. He values the EBITDA, then applies a multiple to that number, based on how much he trusts it to keep arriving without you in the building.

So take a business turning over £10 million at a 15% EBITDA margin.

That is £1.5 million of EBITDA. At five times EBITDA it is a £7.5 million business. At six times, £9 million.

A £1.5 million difference decided entirely by what a buyer makes of the structure underneath.

That is one turn - or one times multiple. Twenty five times the entire lifetime relief, and there is usually more than one turn available to an owner who goes looking.

And unlike the relief, the multiple is not capped, does not shrink when the Chancellor stands up, and does not require you to sell anything at all to benefit from it.

This is where it stops being an observation and starts being work.

If a person were employed purely to watch what your business is worth as an asset, they wouldn’t spend much time on the tax. They would spend it on the handful of things that decide the multiple:

1 - How much of the business runs without you. Not whether you could take a fortnight off. Whether important decisions get made, clients are won and major problems get solved when you aren’t reachable. This is about systems and people. This is the largest single factor and the one owners are least honest about.

2 - Whether your leadership team has authority or just capacity. Most owners at this level have hired people, which is not the same thing as having devolved decision-making.

3 - Whether your reporting tells you what is coming or what already happened. Predictive beats historic. A buyer reads reactive management information as a business being driven by looking in the mirror.

4 - Whether your revenue recurs or gets re-won every year. Contracted and repeating revenue is worth materially more per pound than revenue that has to be found again with each new project.

5 - Whether or not you’ve pursued inorganic growth. A £2m EBITDA business gets priced like a £2m EBITDA business; bolt it into a group doing £10m and the same earnings get valued on a completely different multiple. Whether you build the group, buy into one, join one - or pursue a public listing - the multiple moves before the profit does.

Every one of these also makes the business better to own right now. That is not a coincidence. The things buyers pay a premium for are the same things that make a company less exhausting to run.

There’s a role in your business that nobody currently holds, and it’s attached to the largest number you own.

Take the five items above - decide which is genuinely your weakest area and give it the next six months. You don’t have to take on all five, just pick one. These things can take eighteen months to two years to move properly, which is exactly why the reason to start is not a tax deadline. The reason to start is simply the build time required to see results.

There will always be another Budget, another rate change and another round of letters explaining it. Read them. Act on them where it makes sense.

Then go and spend the rest of your attention on the number nobody else wrote to you about.

All the best,

Gavin

P.S. Every adviser you have works in a lane, and the multiple is not in any of them. That is precisely the problem we solve - an outside view of what is suppressing your value today, and what to fix first, in what order. Just reply to this email with the word "multiple" and I will send you more information on how we can help you.

If you know another business owner who’d benefit from reading this newsletter - please share it with them.

Book a call with me to find out more…