There is no single formula for valuing every business. The main methods are an EBITDA multiple, a revenue multiple, an asset-based valuation and discounted cash flow, with comparable transactions often used to test whether the result is realistic. The best method depends on how the business creates value, so sellers should usually use the most appropriate primary method and cross-check it against other evidence.
| Valuation method | Basic calculation | Often suited to |
|---|---|---|
| EBITDA multiple | Maintainable EBITDA × valuation multiple | Established, profitable SMEs |
| Revenue multiple | Maintainable revenue × revenue multiple | SaaS, subscription and high-growth businesses |
| Asset-based valuation | Market value of assets − liabilities | Property, manufacturing and asset-heavy businesses |
| Discounted cash flow (DCF) | Present value of forecast future cash flows | Businesses with predictable future cash generation |
| Comparable transactions | Relevant market multiple × company financial metric | Businesses with reliable comparable deal evidence |
There is no single business valuation formula that works for every company when selling a business.
A profitable, established SME may be valued using a multiple of maintainable EBITDA. A subscription business might be assessed partly on recurring revenue. An asset-heavy company may be valued by reference to its property, equipment and other net assets, while a business with predictable future cash flows may suit a discounted cash-flow calculation.
For owners preparing to sell, the most useful approach is usually to apply the valuation method that best reflects how the business creates value, then test the result using one or more alternative methods.
This guide explains the main business valuation methods used in the UK and provides a worked example for each one.
The four main ways to calculate a business valuation are:
The result may represent either the value of the trading operations, known as enterprise value, or the value attributable to shareholders, known as equity value.
Professional valuation standards commonly group techniques under three broad approaches: market, income and cost. The individual method selected should reflect the asset or business being valued, the available evidence and the purpose of the valuation.
Before using any business valuation calculator, gather reliable financial and commercial information.
At a minimum, you are likely to need:
UK limited companies must keep financial and accounting records sufficient to show their financial position and support their annual accounts and Company Tax Return. A sale valuation will normally require more detailed management information than statutory compliance alone.
A calculator is only as reliable as the figures entered into it. Using an unadjusted profit number, unrealistic forecast or arbitrary market multiple can produce an apparently precise but commercially weak result.
|
Valuation method |
Basic formula |
Often suited to |
Main limitation |
|
EBITDA multiple |
Maintainable EBITDA × multiple |
Established, profitable SMEs |
The selected multiple and EBITDA adjustments can be subjective |
|
Revenue multiple |
Maintainable revenue × multiple |
Subscription, software and high-growth businesses |
Revenue does not show profitability or cash generation |
|
Asset-based valuation |
Market value of assets − liabilities |
Property, manufacturing and asset-heavy companies |
May understate goodwill and future earning potential |
|
Discounted cash flow |
Present value of forecast future cash flows |
Businesses with predictable cash generation |
Highly sensitive to forecasts and discount-rate assumptions |
|
Comparable transactions |
Relevant market multiple × company metric |
Companies with reliable comparable deal evidence |
Truly comparable private-company data may be limited |
An EBITDA multiple is one of the most commonly used business valuation methods for established, profitable SMEs.
EBITDA means earnings before interest, tax, depreciation and amortisation. It provides a measure of operating performance before financing costs, taxation and certain non-cash accounting charges.
The simplified business valuation formula is:
Maintainable EBITDA × valuation multiple = enterprise value
Assume a company has reported EBITDA of £500,000.
After reviewing its accounts, the seller and adviser identify:
The maintainable EBITDA calculation would be:
|
EBITDA adjustment |
Amount |
|
Reported EBITDA |
£500,000 |
|
Add back non-recurring legal costs |
£30,000 |
|
Add back personal costs |
£20,000 |
|
Deduct additional replacement management cost |
(£70,000) |
|
Maintainable EBITDA |
£480,000 |
If an appropriate multiple is 4.5:
£480,000 × 4.5 = £2,160,000 enterprise value
The £2.16 million figure represents the indicative value of the trading operations before agreed adjustments for cash, debt and working capital.
Read our blog on EBITDA add backs here.
Maintainable EBITDA is an estimate of the recurring operating earnings that could reasonably continue under new ownership.
It may differ from the EBITDA shown in the latest accounts because a buyer will consider whether particular income and expenses are:
Possible adjustments include:
A cost should not be added back simply because the seller describes it as exceptional. Buyers will usually require evidence that it will not recur or be replaced by another necessary expense.
The multiple reflects the perceived quality, growth and risk of the company.
Factors that may support a higher multiple include:
Factors that may reduce the multiple include:
Private-company transaction multiples can provide useful evidence, but they need to be applied consistently and adjusted for differences between the comparable company and the business being valued. ICAEW maintains resources covering UK private-company multiples and sources of EBITDA and price-multiple data.
Owners often begin by asking, “What multiple does my industry achieve?”
A more useful first question is:
What level of earnings can a buyer confidently expect to continue after I leave?
An ambitious multiple applied to overstated EBITDA will not create a credible valuation. Establish maintainable earnings first, then assess the multiple in light of the company’s risks, strengths and market evidence.
A revenue multiple values a business by applying a market multiple to its maintainable annual revenue.
The formula is:
Maintainable annual revenue × revenue multiple = enterprise value
This method may be considered for businesses where revenue growth, recurring income or market share is more informative than current profit.
Examples can include:
Assume a subscription business generates:
If relevant market evidence supports a revenue multiple of 1.8:
£2,500,000 × 1.8 = £4,500,000 enterprise value
However, a buyer may decide that only the recurring portion deserves the higher multiple.
For example:
|
Revenue category |
Revenue |
Applied multiple |
Indicative value |
|
Recurring subscription revenue |
£2,000,000 |
2.0 |
£4,000,000 |
|
Non-recurring project revenue |
£500,000 |
0.8 |
£400,000 |
|
Indicative enterprise value |
£4,400,000 |
This illustrates why a single headline revenue number may not provide enough information.
Buyers may assess:
Two companies with identical revenue can have very different values.
A company with high retention, strong margins and predictable subscription income may attract a higher multiple than a company relying on low-margin, one-off projects.
Revenue multiples can be misleading where:
Revenue is not the same as value. The buyer ultimately needs to understand how revenue can translate into sustainable future cash flow.
ICAEW’s private-company multiples resources are updated using transaction information from completed UK private-company deals. This matters because valuation multiples are not fixed: they can change with buyer demand, financing conditions, sector confidence and the quality of businesses coming to market.
A multiple sourced several years ago may therefore be less relevant than recent comparable evidence. Sellers should also check whether the published transactions are genuinely comparable in size, profitability and business model.
An asset-based valuation calculates the value of a business by assessing what it owns and deducting what it owes.
The simplified formula is:
Market value of assets − liabilities = net asset value
This method may be particularly relevant for:
Assume a company has the following assets:
|
Asset |
Book value |
Estimated market value |
|
Freehold property |
£800,000 |
£1,100,000 |
|
Plant and machinery |
£500,000 |
£350,000 |
|
Stock |
£300,000 |
£240,000 |
|
Trade debtors |
£250,000 |
£230,000 |
|
Cash |
£150,000 |
£150,000 |
|
Total assets |
£2,000,000 |
£2,070,000 |
Its liabilities are:
|
Liability |
Amount |
|
Bank debt |
£400,000 |
|
Asset finance |
£150,000 |
|
Trade creditors |
£220,000 |
|
Tax liabilities |
£100,000 |
|
Total liabilities |
£870,000 |
The indicative net asset value is:
£2,070,000 − £870,000 = £1,200,000
Book values are accounting figures. They do not necessarily represent what an asset could be sold for.
For example:
Government tax guidance similarly distinguishes the amount recorded or received from an asset’s market value in situations where market value rules apply.
A basic net asset valuation may not fully capture goodwill.
Goodwill can arise from:
For a profitable trading business, an asset-based figure may act as a floor or cross-check rather than the main valuation.
An important business valuation principle is to avoid counting the same value twice.
Suppose a manufacturer is valued using an EBITDA multiple. Its normal machinery is required to produce the earnings used in that calculation.
Adding the full machinery value to the earnings-based valuation could double count the assets already supporting those profits.
However, genuinely surplus assets may be treated separately. Examples could include:
The exact treatment should be clear in the valuation and transaction terms.
Discounted cash flow, usually shortened to DCF, values a business using the present value of the cash it is expected to generate in future.
It is based on the principle that money expected in the future is worth less than money available today because of time and risk.
The DCF process generally involves:
RICS describes DCF as a recognised valuation model whose suitability depends on professional judgement and the circumstances of the valuation. It is not mandatory for every valuation.
The present value of a future cash flow can be expressed as:
Present value = future cash flow ÷ (1 + discount rate)ⁿ
Where:
Assume a company is forecast to generate the following free cash flows:
|
Year |
Forecast free cash flow |
|
1 |
£250,000 |
|
2 |
£280,000 |
|
3 |
£320,000 |
|
4 |
£350,000 |
|
5 |
£380,000 |
Assume a discount rate of 15%.
The simplified present values are:
|
Year |
Cash flow |
Discount factor at 15% |
Present value |
|
1 |
£250,000 |
0.870 |
£217,500 |
|
2 |
£280,000 |
0.756 |
£211,680 |
|
3 |
£320,000 |
0.658 |
£210,560 |
|
4 |
£350,000 |
0.572 |
£200,200 |
|
5 |
£380,000 |
0.497 |
£188,860 |
|
Present value of forecast period |
£1,028,800 |
A complete DCF normally also includes a terminal value representing cash flows beyond the explicit forecast period.
Assume a terminal value of £1.8 million at the end of year five:
£1,800,000 × 0.497 = £894,600 present value
The indicative enterprise value would therefore be:
£1,028,800 + £894,600 = £1,923,400
This is an illustrative calculation, not a recommendation of a suitable discount rate or terminal-value methodology.
The result is sensitive to:
A small change in one assumption can materially alter the outcome.
DCF may be useful where:
It may be less reliable where the business has:
A DCF spreadsheet can produce a valuation to the nearest pound, but that does not make the answer certain.
The model should be tested under several scenarios, such as:
A sensible valuation considers the range of plausible outcomes rather than relying on one optimistic forecast.
Comparable transaction analysis uses evidence from sales of similar companies.
A valuer may examine:
The selected multiple is then applied to the relevant financial metric of the company being valued.
Assume recent transactions suggest the following EBITDA multiples:
|
Comparable business |
EBITDA multiple |
|
Company A |
4.2 |
|
Company B |
5.0 |
|
Company C |
4.6 |
|
Median |
4.6 |
If the subject business has maintainable EBITDA of £400,000:
£400,000 × 4.6 = £1,840,000 enterprise value
However, the valuer may adjust the multiple if the company is:
Private-company transaction details are not always fully public.
Even where a sale price is known, the available information may not show:
A reported “five-times EBITDA deal” may therefore not be directly comparable with your company.
A business valuation calculation often produces enterprise value, but the seller ultimately needs to understand equity value.
Enterprise value represents the value of the company’s trading operations before the agreed treatment of cash and debt.
Equity value represents the value attributable to shareholders after relevant adjustments.
A simplified bridge is:
Enterprise value + surplus cash − debt ± working-capital adjustment = equity value
Assume:
The calculation is:
|
Adjustment |
Amount |
|
Enterprise value |
£2,160,000 |
|
Add surplus cash |
£200,000 |
|
Deduct debt |
(£350,000) |
|
Deduct working-capital shortfall |
(£60,000) |
|
Indicative equity value |
£1,950,000 |
ICAEW guidance on completion mechanisms highlights the importance of understanding the basis of headline enterprise value and the adjustments required to reach the final equity value.
The definitions of cash, debt and normal working capital can be heavily negotiated. They should be considered before Heads of Terms are finalised.
The most suitable method depends on the company.
|
Type of business |
Likely primary method |
Useful cross-check |
|
Established profitable SME |
EBITDA multiple |
Comparable transactions or DCF |
|
Subscription or SaaS company |
Revenue or recurring-revenue multiple |
DCF or future EBITDA |
|
Property-holding company |
Net asset value |
Income approach |
|
Manufacturer |
EBITDA multiple |
Adjusted net assets |
|
Early-stage growth company |
Revenue multiple or DCF |
Comparable funding or transaction evidence |
|
Professional-services firm |
Maintainable earnings multiple |
Revenue and comparable transactions |
|
Distressed company |
Asset or recovery value |
Going-concern earnings where supportable |
|
Investment company |
Net asset value |
Market evidence |
A valuer may use several techniques and reconcile the results.
For example:
Based on this evidence, an adviser might conclude that a defensible enterprise-value range is approximately £2 million to £2.3 million rather than selecting one calculation mechanically.
The ONS recorded 352 completed domestic and cross-border acquisitions involving UK companies in the first quarter of 2026, compared with 495 in the previous quarter. Its statistics cover transactions involving a change in majority ownership and a value of at least £1 million, so they do not represent every SME business sale.
The figures nevertheless demonstrate that transaction activity can move between periods. The availability and relevance of comparable deal evidence can therefore change as market conditions evolve.
Reported EBITDA may include one-off income, personal expenditure or an owner salary that does not reflect the cost of replacement management.
Selecting a desired valuation and working backwards to the multiple is not a reliable methodology.
Listed businesses are often larger, more diversified and easier to buy and sell than owner-managed SMEs.
An enterprise valuation is not necessarily the amount shareholders will receive.
A high-revenue company can still have poor margins, weak cash generation and significant funding requirements.
The accounting value of property, machinery or stock may differ significantly from its realisable value.
Assets required to generate earnings may already be reflected in an earnings-based valuation.
A valuation should be tested against realistic downside and base-case scenarios.
A buyer may reduce the multiple, require a longer handover or make part of the price conditional where the company relies heavily on the seller.
A business valuation is normally better expressed as a range supported by clear assumptions.
A business owner can produce an indicative estimate using reliable information and one or more of the methods above.
A simple process is:
This can be useful for initial planning, but it may not be sufficient where:
HMRC uses specialist Shares and Assets Valuation processes for unquoted shares in relevant tax contexts and applies statutory market-value principles based on a hypothetical open-market transaction. A commercial sale valuation may have a different purpose, but the guidance illustrates why the valuation date, available information and precise interest being valued matter.
An online small business valuation calculator can provide an initial estimate, but it should not be treated as a guaranteed sale price.
A calculator may not fully account for:
Two businesses with the same turnover and EBITDA can have materially different values because their risk profiles are different.
Use an online calculator as a starting point for questions, not as a substitute for commercial judgement and professional advice.
Consider appointing a professional where:
Potential providers include:
For a seller-focused explanation of the commercial factors buyers assess, see How to Value Your Business Before Selling.
A credible valuation gives you a stronger foundation for exit planning, buyer discussions and negotiation.
The most reliable approach is rarely to enter a few figures into a calculator and accept the result. It involves selecting an appropriate methodology, making supportable adjustments and testing the output against the company’s risks and current market evidence.
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