You’re correct that small and medium-sized enterprises (SMEs) are often not valued using EBITDA multiples, as they may not accurately represent the unique characteristics and risks associated with smaller businesses. SMEs may have different growth prospects, market positions, and operational structures compared to larger companies. As a result, other valuation methods may be more appropriate for SMEs.

Here are some alternative valuation methods that might be more suitable for SME businesses:

1. Seller’s Discretionary Earnings (SDE): SDE is a measure of a business’s profitability that takes into account the owner’s salary, perks, and non-recurring expenses. It is commonly used for valuing small businesses. To value a business using SDE, you would calculate the SDE and then apply an industry-specific SDE multiple to estimate the business’s value.

2. Multiple of Revenue: Some SMEs may be valued based on a multiple of their annual revenue. This approach is particularly useful for businesses with relatively stable and predictable revenue streams or when comparing businesses in the same industry.

3. Discounted Cash Flow (DCF): The DCF method projects the future cash flows of a business and discounts them back to their present value. This method can be tailored to the specific characteristics and risk profile of an SME and can provide a more accurate valuation.

4. Asset-based valuation: SMEs with significant tangible assets may be valued based on the net value of their assets (assets minus liabilities). This method can be particularly relevant for businesses where the value is primarily derived from tangible assets, such as manufacturing or real estate companies.

5. Rule of Thumb: Industry-specific rules of thumb can provide a quick estimate of a business’s value based on widely accepted benchmarks or ratios. These rules can be helpful as a starting point but may not accurately capture the unique aspects of an SME.

It’s important to note that no single valuation method is perfect, and it’s often a good idea to use a combination of methods to arrive at a more accurate and comprehensive estimate of a business’s value. Consulting with a professional business appraiser or financial advisor can also be helpful in determining the most appropriate valuation method for an SME.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a commonly used financial metric in business valuation. However, there are certain limitations and drawbacks to using EBITDA for valuation purposes. Some reasons why EBITDA may not be suitable for valuation include:

1. Ignores capital expenditures: EBITDA does not account for capital expenditures (CAPEX), which are necessary investments a company makes to maintain or grow its operations. High-growth companies or those in capital-intensive industries may require significant CAPEX, which could have a considerable impact on the company’s cash flow and valuation.

2. Overlooks working capital requirements: EBITDA does not consider changes in working capital, which can significantly impact a company’s cash flow. Companies with high working capital requirements may appear more profitable when using EBITDA, leading to a potentially inflated valuation.

3. Excludes financing and tax considerations: By excluding interest and taxes, EBITDA does not provide insight into a company’s debt structure or tax efficiency. These factors can have a significant impact on a company’s risk profile and valuation.

4. Non-cash expenses still matter: Depreciation and amortization, although non-cash expenses, reflect the consumption of a company’s assets over time. By excluding these expenses, EBITDA may overstate the company’s cash-generating ability and lead to an inflated valuation.

5. Not suitable for all industries: EBITDA may not be an appropriate valuation metric for certain industries or companies. For example, EBITDA may not accurately reflect the performance of companies with significant intangible assets or those in the financial sector.

6. Can be manipulated: EBITDA can be subject to manipulation through accounting practices, which could result in an inaccurate portrayal of a company’s financial health and lead to a distorted valuation.

7. Lack of standardization: There is no universally accepted method for calculating EBITDA, which can lead to inconsistencies when comparing different companies or valuations.

While EBITDA has its limitations, it can still be a useful tool for understanding a company’s operational performance. However, it should not be the sole basis for valuation. A more comprehensive approach, including other valuation methods and financial metrics, is recommended to obtain a more accurate and reliable estimate of a company’s value.

It’s essential to recognize that not all business brokers manipulate EBITDA, but there can be instances where some brokers might engage in practices to present a more favorable financial picture of a business to potential buyers or investors. Here are some ways EBITDA manipulation can occur:

1. Aggressive revenue recognition: Brokers might encourage businesses to recognize revenue prematurely or use aggressive revenue recognition policies to inflate EBITDA. This can make the business appear more profitable than it actually is.

2. Inappropriate expense classification: Brokers could encourage businesses to classify certain operating expenses as non-operating or extraordinary items, which would not be included in the EBITDA calculation. This can artificially increase the EBITDA figure.

3. Excessive adjustments and add-backs: Brokers might add back excessive or inappropriate discretionary expenses or non-recurring items to EBITDA, making the company appear more profitable. While some adjustments may be valid, excessive or unjustified add-backs can lead to a distorted EBITDA figure.

4. Capitalizing expenses: Instead of expensing certain costs that should be treated as operating expenses, brokers might encourage businesses to capitalize these costs, which can inflate EBITDA by reducing the expenses recognized in the income statement.

5. Inconsistent depreciation and amortization policies: Brokers could encourage businesses to change their depreciation or amortization policies, resulting in lower expenses and higher EBITDA. Inconsistent application of these policies can distort the EBITDA figure and make comparisons with other companies difficult.

To mitigate the risk of EBITDA manipulation, buyers and investors should perform thorough due diligence, critically analyze financial statements, and consider using other valuation methods and financial metrics. It’s also important to work with reputable business brokers and seek professional advice from financial advisors or business appraisers when evaluating a business for acquisition or investment.

While business brokers can provide valuable services to business owners and buyers, there are some reasons why people may feel that they are not a good choice in certain situations. These concerns may include:

1. Conflicts of interest: Business brokers earn a commission based on the transaction’s value, which may lead to conflicts of interest. For example, a broker might prioritize higher-priced deals or push for a quick sale rather than working to achieve the best outcome for the client.

2. Lack of industry expertise: Some brokers may not have sufficient expertise or experience in a particular industry, leading to a poor understanding of the business’s nuances, market trends, and valuation factors. This can result in suboptimal outcomes for clients.

3. High fees: Business brokers typically charge a commission based on a percentage of the transaction value. Depending on the broker’s fee structure, this can be a significant expense, particularly for smaller businesses.

4. Limited buyer pool: Some business brokers may have a limited network of potential buyers, which could result in fewer opportunities for a successful transaction. Additionally, relying on a broker may cause sellers to miss out on potential buyers they could have found independently.

5. Confidentiality concerns: Engaging a business broker may raise concerns about maintaining confidentiality during the sale process. Business owners may worry about sensitive information becoming public or competitors learning about the potential sale.

6. Ineffective marketing: Some brokers may not invest sufficient time and resources in marketing a business, resulting in a lack of exposure to potential buyers and a longer time on the market.

7. Inadequate due diligence: Some brokers may not conduct thorough due diligence on potential buyers, potentially exposing the seller to risks associated with unqualified buyers or failed transactions.

It’s important to note that these concerns do not apply to all business brokers, and many professionals provide valuable services to clients. 

Business brokers typically charge a commission based on a percentage of the transaction value, and this percentage can vary depending on the size and complexity of the deal. For smaller transactions, the commission percentage may be higher, while larger transactions often have a lower percentage. It’s not uncommon for business brokers to charge a commission between 5% and 15% of the transaction value.

In addition to the commission, some brokers may also charge an upfront fee or retainer to cover their expenses, such as marketing and advertising, while they work on finding a buyer for your business. This fee can range from a few thousand dollars to tens of thousands, depending on the broker and the specific services they provide.

• Prepare your business for sale: Before selling your business, it’s important to get it in the best possible shape. This may include making improvements to the physical space, updating equipment, and ensuring that financial records are accurate and up-to-date.

• Determine the value of your business: You’ll need to determine the fair market value of your business before putting it up for sale. Consider us to help with this process.

• Develop a marketing strategy: Once you know the value of your business, you can begin developing a marketing strategy to attract potential buyers. This may include creating a business listing, reaching out to industry contacts, and using social media to promote the sale.

• Negotiate with potential buyers: When you receive offers from potential buyers, it’s important to negotiate the terms of the sale carefully. Consider factors such as the purchase price, payment terms, and any contingencies or warranties.

• Plan for retirement: Once the sale is complete, you’ll need to plan for your retirement. This may include creating a retirement budget, deciding on a retirement location, and developing a plan for managing your assets and investments.

• Seek professional advice: Selling a business and retiring can be complex processes, so it’s important to seek advice from professionals such as financial advisors, attorneys, and tax experts to ensure that you’re making the best decisions for your situation

Potential scenarios for splitting equity in your venture, taking into consideration different roles, responsibilities, and contributions.

1. Equal Split: All partners share the equity equally, regardless of their role or capital investment. This might work if all partners are contributing equally in terms of time, expertise, and money.

2. Capital Contribution Split: Equity is divided based on the amount of capital each partner contributes. For instance, if Partner A contributes 70% of the capital and Partner B contributes 30%, the equity would be split 70-30.

3. Role-Based Split: Equity is divided based on the roles and responsibilities each partner assumes. For example, the deal maker gets 30%, the restaurant manager gets 40% for their operational expertise, and the silent investor gets 30%.

4. Hybrid Split: A combination of the above methods. For instance, half of the equity could be divided based on capital contributions, and the other half could be divided based on roles and responsibilities.

5. Performance-Based Split: A portion of equity is reserved and distributed based on achieving certain milestones or goals. For instance, after reaching certain revenue targets, opening more branches, etc.

6. Vesting Split: Equity is earned over time. Each partner might start with a certain percentage, with additional equity vesting over a period of 3-4 years.

Vesting is a mechanism that incentivizes partners or employees to stay committed to the company for a longer period by gradually granting them ownership in the business.

Let’s illustrate this with an example:

Suppose you and your partner decide to start a restaurant business. You both agree that each of you will own 50% of the company’s shares. However, instead of giving you and your partner all these shares upfront, you decide to implement a four-year vesting schedule with a one-year cliff.

This means that each of you will earn your shares over four years. But if either of you leaves the company before the end of the first year (the one-year “cliff”), that person would get no shares. If you stay past that point, you would instantly vest 25% of your shares (which is 1/4th of the total, as you’re vesting over 4 years), and the remaining 75% would vest evenly on a monthly basis over the next 3 years.

So, for example, if a partner decides to leave after 2.5 years, they would still retain ownership of roughly 62.5% of their total equity (25% for the first year plus approximately 37.5% for the additional 18 months). The unvested equity can then be repurchased by the company or reallocated to other team members.

This approach encourages the partners to stick with the business, as they stand to gain more the longer they stay. Also, in the event a partner leaves early, the business is protected from losing a significant portion of its ownership to someone who is no longer contributing.

Remember, it’s crucial to have these arrangements clearly laid out in legal agreements, and the specific terms can be adjusted to best suit your situation. Always consult with a legal professional when setting up vesting schedules and equity agreements.

In this case, let’s consider a hypothetical scenario for a restaurant/take-away business involving four partners: You (the bringing strategic value and business opprtunities), A (culinary expert), B (business manager), and C (primary investor).

1. Role-Based Equity Split:

   • You: 20% (as the deal maker, bringing strategic value and business opportunities, without capital investment)

   • A: 30% (as the head chef, bringing unique skills and time commitment)

   • B: 30% (as the business manager, bringing business expertise and part-time commitment)

   • C: 20% (as the primary investor, bringing significant capital but not involved in daily operations)

2. Vesting Schedule: Implement a four-year vesting schedule with a one-year cliff for all partners. If you, A or B leaves before the first year, you/they wouldn’t receive any equity. After the first year, you/they would receive 25% of your/their equity, with the remaining equity vesting monthly over the next three years. Since C’s contribution is capital, they could be fully vested from the start.

3. Performance-Based Equity: Set aside an additional 10% of total equity that will be distributed to you, A and B based on achieving certain business milestones, such as reaching particular revenue targets or successfully opening new branches.

4. Buy-Sell Agreement: Implement a buy-sell agreement to determine what happens to a partner’s shares if they wish to exit the business, become incapacitated, or pass away.

5. Salaries and Profit Sharing:

   • You, being the deal maker and potentially being involved in the business development part-time, might draw a reasonable salary once the business starts making a profit, let’s say £30,000 per year.

   • A, as a full-time working partner, might draw a reasonable salary from the start, let’s say £40,000 per year.

   • B, being a part-time partner, might agree to a smaller salary or defer the salary until the restaurant is profitable, for instance, £20,000 per year.

   • C, as an investor, would likely forego a salary, expecting a return through increased valuation and dividends.

   • Once the business is profitable, all partners could receive a share of the profits proportional to their equity.

As always, these are just illustrative figures. The actual numbers would depend on many factors, including the amount of capital needed, the market value of the skills each partner brings, and the profits the restaurant is expected to generate. Always consult with legal and financial professionals to understand the implications and details specific to your situation.

A 50/50 equity split might seem like the simplest and most fair arrangement when starting a business, but it can also create significant challenges:

1. Decision Deadlock: A 50/50 split can lead to a stalemate on important decisions if the partners disagree. Without a majority shareholder, there’s no tie-breaking vote, which can prevent the company from moving forward. This is especially a concern in situations where the partners have different visions for the company or different ideas about how to address problems.

2. Different Levels of Commitment: A 50/50 split assumes that both partners will contribute equally to the business in terms of time, effort, skills, and resources. However, this isn’t always the case. One partner might end up contributing significantly more than the other, leading to resentment and conflict.

3. Inability to Attract Investment: Future investors often prefer to see a clear leader with the majority of the voting rights in a company. If the ownership is split 50/50, it may be more difficult to attract investment.

4. Misaligned Expectations: A 50/50 split can also mask different expectations about the business. One partner might see the business as a part-time venture, while the other expects to work full-time. These different expectations can create conflict down the line.

In many cases, a more nuanced equity structure that reflects the partners’ respective contributions and roles in the company, and includes mechanisms for decision-making and dispute resolution, can help avoid these problems. As always, it’s crucial to seek legal and financial advice when setting up a business partnership.

Let’s consider a hypothetical scenario where you, along with two other partners, are starting a new venture:

1. You (The Strategic Leader): You bring in the unique business idea, industry contacts, and strategic direction but not much capital.

2. Partner A (The Technical Expert): They bring unique technical skills crucial to the business, along with a smaller amount of capital.

3. Partner B (The Investor): They provide the majority of the capital but are not involved in the day-to-day running of the business.

Given these dynamics, the initial equity could be distributed like this: You – 30%, Partner A – 30%, Partner B – 40%. This reflects the capital contribution and the value each partner brings to the business.

However, because of your unique role and value you bring, you might negotiate to have a greater say in strategic decisions. This could be done in several ways:

1. Voting and Non-Voting Shares: The company could issue two types of shares: voting shares (which have voting rights) and non-voting shares (which do not). Even if you own less total equity, you could own the majority of voting shares, giving you control over major decisions. For example, 70% of your shares and 30% of Partner A’s shares could be voting shares, while all of Partner B’s shares are non-voting. This would give you control over decisions despite owning less total equity.

2. Board Control: You could arrange for the company’s board of directors to include you and two other individuals who support your vision. Even if Partner B owns more equity, the board could still make decisions based on a majority vote.

3. Decision Rights in the Operating Agreement: The company’s operating agreement could specify that certain key decisions (like hiring/firing key managers, setting the budget, or changing the business strategy) require your approval.

This is a hypothetical example and the actual arrangements can be complex, with significant legal and tax implications. Therefore, it’s crucial to get advice from legal and financial professionals when setting up the ownership and governance structures of a business.

1. Equity Split based on Contributions:

   • You (deal maker): 20%

   • A (culinary expert): 25%

   • B (business manager): 25%

   • C (primary investor): 30%

2. You take a slightly smaller share to acknowledge the greater financial risk that the other partners are assuming. However, the exact percentage can be negotiated and depends on the perceived value of your contribution.

3. Control through Voting and Non-voting Shares:
   To maintain control over major decisions, you could arrange for all your shares and a portion of A’s and B’s shares to be voting shares, while the rest of A’s and B’s shares and all of C’s shares are non-voting. This ensures that even with a smaller equity stake, you maintain control over decisions.

4. Board Control:
   Establish a board of directors consisting of you, A, B, and an external advisor who supports your vision. This gives you a controlling vote in strategic decisions of the business.

5. Decision Rights in the Operating Agreement:
   You could stipulate in the company’s operating agreement that key decisions such as business expansion, menu changes, or major expenditure need your approval, ensuring you have control in the strategic direction of the company.

This arrangement recognizes the value of your contribution in terms of the strategic vision and leadership you bring to the company, while also acknowledging the greater financial risk that the other partners are assuming. As always, such arrangements should be worked out with the advice of legal and financial professionals, to ensure they are fair, legal, and promote the long-term success of the business.

1. Equity Split based on Roles:

   • You (Deal Maker/CEO): 25%

   • A (Culinary Expert/Chef): 25%

   • B (Business Manager/COO): 25%

   • C (Primary Investor/CFO): 25%

This split implies that each partner brings unique skills and responsibilities that are crucial to the success of the business, and therefore each deserves an equal share.

However, if you wish to maintain control in this scenario, you can again turn to different mechanisms to ensure this:

2. Control through Voting and Non-voting Shares:
   You could arrange for all of your shares and a portion of A’s and B’s shares to be voting shares, while the rest of A’s and B’s shares and all of C’s shares are non-voting. This ensures that even with an equal equity split, you maintain control over decisions.

3. Board Control:
   Establish a board of directors consisting of you, A, B, and an external advisor who supports your vision. This gives you a controlling vote in strategic decisions of the business.

4. Decision Rights in the Operating Agreement:
   You could stipulate in the company’s operating agreement that key decisions such as business expansion, menu changes, or major expenditure need your approval, ensuring you have control in the strategic direction of the company.

Remember that while this is a hypothetical situation, it’s crucial to have transparent discussions and to consult with legal and financial professionals when setting up these structures. There can be significant legal, tax, and interpersonal implications based on how you decide to split equity and control within the business.

1. Skills and Contributions: Evaluate the skills, experience, and value that the person brings to the business. Consider how their involvement can contribute to the company’s growth and success. If they have a unique expertise or contribute significantly to the operations or strategic direction, it may be reasonable to consider offering equity.

2. Commitment and Long-Term Alignment: Assess the individual’s level of commitment to the business and their long-term alignment with your goals. If they are fully invested in the success of the venture and demonstrate a strong commitment, offering equity can be a way to incentivize and align their interests with yours.

3. Financial Contributions: Consider whether the person is making financial contributions to the business. If they are investing capital into the venture, it may be appropriate to offer equity in return for their financial commitment.

4. Equity Structure: Determine how much equity you are comfortable giving away and the impact it will have on your ownership and control of the business. Consider the potential dilution of your ownership and the implications of sharing decision-making authority.

5. Legal and Tax Implications: Seek legal and financial advice to understand the legal and tax implications of offering equity to someone. There may be specific regulations and tax considerations that you need to navigate.

6. Alternatives to Equity: Explore alternative compensation structures such as profit-sharing, performance-based bonuses, or stock options that can align the person’s interests with the company’s success without diluting equity.

Remember, offering equity is a significant decision that can have long-term consequences. Carefully evaluate the pros and cons, and consult with professionals to ensure the arrangement aligns with your goals and interests.

1. Determine Your Desired Ownership: Decide on the percentage of equity you want to retain for yourself to maintain full control. This should reflect your role as the deal maker and the level of control you want to maintain over the strategic direction of the restaurant.

2. Assess the Contributions and Experience of Others: Evaluate the experience and expertise of the individuals who will be involved in the restaurant venture. Consider their potential contributions in terms of operational knowledge, industry connections, and financial investment.

3. Negotiate Equity Split: Engage in open and transparent discussions with the other parties involved to negotiate an equitable equity split. Take into account their experience and potential financial contributions. Aim for a split that rewards their contributions while still allowing you to retain full control.
   For example, you could propose an arrangement such as:

   • You (Deal Maker): Retain 60% ownership for full control.

   • Other Partner A (Restaurant Expert): Offer 20% ownership in recognition of their experience and contribution.

   • Other Partner B (Investor): Offer 20% ownership in exchange for their financial investment.

4. Consider Vesting and Performance-Based Equity: Implement vesting schedules or performance-based equity structures to ensure ongoing commitment and alignment of interests. This can motivate all parties to actively contribute to the success of the restaurant venture over the long term.

5. Formalize the Agreement: Draft a formal agreement that outlines the equity split, roles, responsibilities, decision-making authority, and any other relevant terms. This agreement should be reviewed and approved by legal professionals to ensure its enforceability and compliance with applicable laws and regulations.

Remember, each situation is unique, and the specific equity split and terms will depend on the parties involved, their contributions, and your negotiation process. It is advisable to consult with legal and financial professionals to guide you through the equity-sharing process and to protect your interests.

1. Equal Split with Vesting: Split the equity equally among all partners and implement a four-year vesting schedule with a one-year cliff. This is simple and clear, incentivizing all partners to stay committed for at least four years.

2. Contribution-Based Split with Vesting: Allocate equity based on each partner’s contribution (capital, expertise, time commitment, etc.), but still implement a vesting schedule. This ensures that everyone’s initial contributions are recognized, while the vesting schedule incentivizes long-term commitment.

3. Role-Based Split with Milestone-Based Bonuses: Assign basic equity based on roles and responsibilities, but also set aside a pool of equity to be granted as bonuses when certain milestones are achieved. This can be combined with a vesting schedule to incentivize both performance and commitment.

4. Hybrid Model: Combine all the above methods. Have a basic equity split based on contributions, a vesting schedule to incentivize commitment, and a bonus pool to incentivize performance. This can be complex to manage, but it’s also the most flexible and potentially the most fair.

In all cases, it’s essential to have a buy-sell agreement in place. This sets clear rules about what happens if a partner wants to sell their share, or in the case of their incapacity or death. It can help prevent disputes and ensure a smooth transition in such scenarios.

Remember that equity is not the only way to reward contributions. Salaries, dividends, and other forms of compensation can also play a role, and having a diverse compensation structure can sometimes be more effective than simply offering more equity.

Finally, consult with a lawyer and financial advisor before making any decisions. They can provide advice tailored to your specific situation, ensuring you comply with laws and regulations, and helping you understand the implications of your choices.

When buying a business, there are several methods you can use to determine its value. One common method is using a multiple of the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or EBIT (Earnings Before Interest and Taxes). This is a measure of a company’s profitability.

As you mentioned, a typical multiple for many industries could be 2-3 times the EBITDA or EBIT, though this multiple can vary significantly depending on the industry and specific circumstances of the business. This calculation gives you a value for the ongoing operations of the business.

To this, you would add the value of the net assets of the business. The net assets are the total assets of the business (including cash, accounts receivable, inventory, property, equipment, etc.) minus any liabilities.

However, as you pointed out, not all cash in the business bank account would typically be included in the net assets for the purposes of the valuation. Instead, a normal amount of operating cash would be included in the net assets, and any surplus cash (above the normal operating requirements) could be added to the purchase price.

So, the purchase price could be structured as follows:

1. Upfront payment: This could include a leveraged amount of the business assets (including any surplus cash). Leveraging assets means using debt (like a bank loan) to finance the purchase of the business. This minimizes the amount of personal funds you need to contribute upfront.

2. Deferred payment: The balance of the purchase price could be paid over time. This might be structured as a seller note (where you essentially owe the seller money over time), earn-outs (where the seller gets paid more if the business performs well), or other similar structures.

Including cash in the business bank account as part of the initial consideration essentially means that you’re using the cash in the business to partially fund the purchase of the business.

For example, if you’re buying a business for £1 million and there is £200,000 of surplus cash in the business bank account, you might structure the deal so you only need to come up with £800,000 upfront. The other £200,000 would come from the cash in the business bank account. This would still count towards the total purchase price from the seller’s perspective, but it would reduce the amount of money you need to provide upfront.

Another Example:

Here’s a simplified example that might illustrate the idea. Please remember, this is a simplified scenario and actual tax implications can be much more complex.

Assume you’re buying a business with:

• EBITDA: £1 million/year

• EBITDA Multiple: 5

• Net assets (excluding cash): £500,000

• Cash in business bank account: £200,000

Let’s further assume the seller’s tax rate is 30% on regular income but 20% on capital gains.

First, without considering the cash as part of the deal, the business value would be calculated as:

• EBITDA value = EBITDA * EBITDA Multiple = $1 million * 5 = £5 million

• Total Business Value = EBITDA value + Net assets = £5 million + £500,000 = £5.5 million

The seller would typically owe taxes on this amount, depending on how it is classified (ordinary income or capital gains).

If you wanted to consider the cash as part of the initial consideration, you could negotiate the terms to reflect this. You could propose a purchase price of £5.5 million, but with the understanding that £200,000 of the purchase price is already satisfied by the existing cash in the business account.

So the actual cash you would transfer at the sale would be:

• Actual Cash Transferred = Total Business Value – Cash in Business Account = £5.5 million – £200,000 = £5.3 million

In terms of taxes, the seller would still need to account for the full sale price (£5.5 million). They could potentially structure it such that part of the sale is considered capital gains (perhaps the £500,000 of net assets and the £200,000 of cash in the bank account). The remaining £4.8 million (from the EBITDA valuation) could be considered ordinary income.

In such a scenario, their tax could be potentially less than if the entire amount was taxed as ordinary income. The actual tax savings would depend on the specific tax laws and rates in the relevant jurisdiction.

This is just a hypothetical scenario, and in practice, these calculations would be much more complex and would need to account for various factors. Therefore, it’s crucial to consult with a tax advisor or an accountant who can provide advice tailored to your specific circumstances and the local tax laws.