A founder who spends two decades steering a company knows how to drive through fog. They learn to read patterns in clients, suppliers and staff. They also learn to negotiate with banks, deal with tax and improvise office space in old warehouses. That is how many firms crawl from nothing to £10m turnover and beyond. Instinct and initiative do the lifting. Yet instinct loses power once a firm settles around £1m profit. At that level a business behaves more like a machine than an adventure. To climb further, it requires new gearing. Structure becomes strategy.
Consider a property development project management firm operating for twenty years. The founder built it from a desk above a garage to a team of forty. Turnover rests at £10m and profit sits close to £1m. Clients return with repeat development work. The founder has also acquired commercial offices, industrial sheds and storage yards during the journey. These properties have a market value of around £2m. Only part of the space is used by the firm. The remaining units are leased to neighbours and subcontractors. The founder likes having buildings. They feel safe, tangible and a signal of success.
However, the buildings complicate things. Investors tend to agree that properties increase collateral strength, yet they also impede valuation clarity. Buyers prefer clean trading groups with no distractions. Analysts want to compare EBITDA against similar firms. Property leaks muddy detail into that calculation, creating a mixed bag that limits multiples. The founder has noticed that whenever private equity circles the sector, valuations float around 3 to 5 times EBITDA. Meanwhile, well-organised infrastructure project management firms attract 7 to 10 times due to professional governance and predictable contracts.
This difference between 5 times and 10 times EBITDA determines whether a founder remains stuck at a plateau or breaks through to a market platform. The difference also affects succession. If the firm never breaks out of the owner-operator mould, managers rarely become owners and founders rarely exit without drama. Banks hesitate to finance management because the business still revolves around the founder’s goodwill. Hence the plateau.
The turning point begins with separation. Instead of selling outright or waiting for a buyer to appear, the founder reforms the business architecture. The trading operations sit within a new company dedicated to running project management work. The commercial property is held in special-purpose vehicles, each with clean leases. Those leases span fifteen years on a full repairing and insuring basis. The rent runs at around £160,000 a year on an 8 percent yield. The SPVs become long-term holdings suitable for a family portfolio. The operating company becomes a pure trading group. This structural sorting resembles refining ore. The rock is crushed, the metal separated, the slag discarded. Investors buy metal.
The founder also forms a family holding structure to own the SPVs and to hold fixed value shares in the trading group. The family holding receives the property vehicles, giving the founder a quiet £160,000 per year for the household. The trading group can now be valued cleanly on EBITDA. With £1m EBITDA and a steady client base, a 5 times valuation feels defensible. The enterprise is marked at £5m.
Now the founder performs a share exchange. They trade their £5m of ordinary shares for £5m of fixed-value redeemable shares. These fixed value shares stay constant. They embody twenty years of hard labour. New ordinary shares are created which hold both voting rights and growth rights. These ordinary shares will capture all value above the fixed £5m foundation. The founder still controls the company but now has a clear boundary between historical value and future value.
The next phase is psychological. The founder offers the senior management team twenty percent of the new ordinary class for nominal consideration linked to their continuing role. Most management teams deal with bonus schemes or phantom equity promises. This arrangement does something different. It transforms employees into co-authors of profit. Their fortunes become aligned with EBITDA and contract wins. Incentives alter behaviour. They no longer ask what the founder wants, they ask what the company’s valuation wants.
With structure and incentives set, the company opens new lines of work. It enters longer-running infrastructure programmes. These contracts offer recurring fees and a more consistent utilisation of project coordinators and quantity surveyors. Revenue grows from £10m to £15m over three years. EBITDA reaches £1.5m. Investors notice the stability of contracts and reward the trading group with a higher multiple, around 7 times. The valuation becomes £10m.
The management team now owns twenty percent of the growth. Their stake represents roughly £1m. They acquired it through contributions instead of loans or family capital. The founder holds freezer shares worth £5m and property worth £2m within the family holding. The family holding has now grown indirectly to £7m or more, depending on valuation assumptions and the founder’s operating company no longer demands their daily presence. The machine now runs with professional managers.
At this stage, many founders want to reduce their workload. They may want to pursue other ventures, advise the region or enjoy time with their grandchildren. The founder in this example wants to gradually hand control to the management team. A direct sale of voting control would normally require millions. Management rarely has savings to fund that purchase. External private equity could help but that changes the culture and may impose aggressive leverage.
Instead, the firm conducts a second ownership transition using the structure. The £10m valuation becomes the reference point. The founder assigns £9m of that value to the family holding and allows management to receive £1m of value through participation in a new class of voting and growth shares. Management receives 49.9 percent of this new class for nominal consideration. The founder keeps 50.1 percent at this stage. Management now holds effective operating control, subject to performance and the redemption of the fixed-value shares.
This arrangement resembles a synthesis of private equity discipline and family business patience. The founder sets a five-year window for management to retire the fixed value shares and then the founder will sell a further 10 percent, allowing management to hold a majority. During this window, the business focuses on scaling volumes, refining processes and improving margins. The trading group pushes into national tenders and larger consortia.
Year after year profits support the redemption of fixed shares held by the family holding. This redemption behaves like an internal leveraged buyout without external debt. The company finances its own succession through operating profit rather than salaries or personal loans. Investors and bankers observe progress and begin to see the company as a consolidation platform in the sector. Competitors start conversations. Trade press begins to notice.
By year four, turnover reaches £20m, EBITDA climbs to £2.5m and the longer contracts attract evaluations at 8 times EBITDA. The trading group is now worth £20m. Management controls 49.9 percent and anticipates a tenth less from the founder in due course. The redemption balance on the fixed value shares stands at roughly £9m. Management secures a £5m bank loan to retire that balance, then the founder sells the promised 10 percent voting stake. Management now holds a majority.
The founder’s family holding walks away with £9m of cash from redemptions and forty percent of a company worth at least £20m. That forty percent amounts to £8m. In addition to the property valued at £2m, the family enjoys a net worth of around £19m to £20m. The management team holds sixty percent of a £20m company. The stake equals £12m after repaying the £5m loan. They earned most of it through performance rather than financial leverage. They now propose a consolidation merger to create a national platform. The founder supports the initiative from the board.
This narrative contains dual benefits. First, the founder increases wealth without surrendering culture or vision. Second, the management team becomes owners without losing their shirts. Third, the business avoids private equity pressure while adopting many of its growth habits. Fourth, the family transitions wealth into a structured vehicle that can support education, housing or other family missions over the long term. Fifth, valuation multiples break past the owner-operator ceiling.
Why does this work? Because ceilings seldom arise from lack of opportunity. They arise from a lack of structure. Owner-operator firms often mix operational assets with personal investments. They also depend heavily on the founder’s presence. Buyers price that dependency. They fear the founder leaving and taking the business with them. Multiples drop to the low end. If the founder removes non-trading assets, empowers professional managers and clarifies governance, fear declines and valuation rises.
The technical heart of this example lies in EBITDA multiples. EBITDA measures the engine speed of the trading company. Multiples measure the market’s confidence in that engine. Owner-operator firms may produce EBITDA but the market doubts whether that EBITDA survives the founder’s exit. The EEV structure instils management with confidence and provides the market with a transition path. Faith and path increase multiples.
The family holding provides the final pillar. It acts like a reservoir. Each year, the reservoir receives rent from the property SPVs and cash from redemptions. Without that reservoir, the founder might have demanded high dividends from the operating company, thereby weakening the company's growth potential. With the reservoir, the founder allows management to reinvest at a higher velocity. This cycle resembles water infrastructure. A hydropower plant requires flow and storage. If storage disappears, flow becomes erratic and power drops. If storage is available, flow can be regulated and converted into lasting energy.
Succession also assumes a different posture. Instead of forcing children to run the project management firm, the family holding owns shares that generate dividends and growth without requiring technical expertise. Trustees or directors can represent the family. Children can pursue their own interests while benefiting from the family institution. The management team runs the actual business, earns equity and pushes regional operations into national reach.
When private equity firms survey sectors for consolidation targets, they apply a checklist. They look for repeat work, regional dominance, strong management and limited dependence on the founder. They also look for a clean balance sheet and no property distractions. Firms that meet that checklist receive valuations of 8 to 12 times EBITDA, depending on competition and contract length. Most family businesses never reach that level because the founder never unlocks management or tidies the balance sheet.
The quiet contribution of the structure lies in time. Instead of forcing an overnight transaction, the structure allows the firm to mature into an institutional form. Maturity increases valuation far more than negotiation. The founder in this example captured roughly £20m of value from a company that once appeared stuck at £5m. The management team secured ownership in a firm they believed in. Consolidation became viable.
One can also flip the story. Without structure, the founder might have sold the trading group for £5m at 5 times EBITDA. After tax, they might have ended with less than £4m. They would have kept the properties but would have lost the operational upside. Management would have been scattered or remained as employees under a new owner. The business might have been swallowed by a larger competitor with little interest in continuity.
Breaking the £1m profit ceiling involves more than ambition. It involves institutional thinking. Structure turns profit into valuation. Valuation turns management into owners. Owners pursue scale. Scale raises EBITDA and multiples. Together, they produce outcomes that benefit all parties: the founder, the family, the managers and even the market that receives a stronger company.
