How to Value a Business in the UK

Business valuation at a glance

• Main method: multiple of adjusted EBITDA.
• Adjustments matter more than the multiple. Get them wrong and nothing else helps.
• Enterprise value is the business. Equity value is what you receive.
• Turnover multiples apply in few sectors and are usually a warning sign.
• Key-person risk is the largest discount on most owner-managed businesses.

Table Of Contents

• Why Valuation Is a Range, Not a Number
• The Three Main Methods
• Step One: Adjusted Profit
• Step Two: Choosing a Multiple
• Step Three: From Enterprise Value to What You Receive
• A Worked Example
• What Actually Moves the Price
• When You Need a Formal Valuation
• Preparing a Business for Sale
• Get Help Valuing Your Business

Why Valuation Is a Range, Not a Number

A valuation is an opinion supported by method, not a fact. Two competent advisers looking at the same accounts will produce different figures, because the judgements involved (which profits are maintainable, what risk the buyer is taking, what the owner does for free) are genuinely matters of opinion.

What a valuation gives you is a defensible range and, more usefully, an understanding of what drives the number. The actual price is set by negotiation, by how many buyers want the business, and by what a specific buyer can do with it that you can’t.

That last point explains why “what’s my business worth?” has no single answer. A competitor who can strip out duplicated overheads, or a buyer acquiring your customer list to sell something else into it, can rationally pay more than a financial buyer. The business is worth different amounts to different people, and a strategic premium can dwarf the difference between a 4x and a 5x multiple.

Be wary of anyone who gives you a figure quickly. Free online valuation tools apply a crude sector multiple to turnover or profit and ignore every adjustment that matters. They exist to generate enquiries, not valuations.

The Three Main Methods

1. Multiple of earnings. The default for profitable trading businesses. Take adjusted profit, apply a multiple. Covered in detail below.

2. Asset-based. Net assets, sometimes adjusted to market value. Appropriate for property companies, investment businesses, asset-heavy operations, and any business being wound down rather than sold as a going concern. For a profitable trading business it usually sets a floor rather than a valuation: nobody sells a business generating £300,000 a year for the value of its vans.

3. Discounted cash flow. Projects future cash flows and discounts them to present value. Theoretically the most rigorous method and the most sensitive to assumptions, which makes it unreliable for small businesses where forecasts beyond two years are speculative. Useful for businesses with long contracted revenue streams.

In practice most owner-managed sales use method one, sense-checked against method two. If the answers are wildly apart, that’s information: an earnings valuation well below net assets usually means the business isn’t earning an adequate return on the assets tied up in it.

Step One: Adjusted Profit

This is where most of the value is found or lost. The aim is maintainable profit: what a new owner could realistically expect to repeat, stripped of anything specific to you.

Start with operating profit over three years, weighted towards the most recent, then adjust.

Add back:

• Director salary and dividends above market rate. If you pay yourself £150,000 to run a business a manager would run for £70,000, £80,000 is really profit.
• Personal costs run through the business. A spouse on the payroll who doesn’t work there, personal vehicles, travel that isn’t business travel.
• One-off costs. A legal dispute, a failed project, relocation, exceptional bad debt.
• Non-recurring income, which comes off rather than being added back, for the same reason.
• Rent above or below market where you own the premises personally. Both directions need normalising.

Deduct:

• The cost of replacing what you do for free. If you’re the sales director and take no salary for it, the buyer must hire one. That’s a real cost against maintainable profit.
• Deferred investment. Equipment at the end of its life, software needing replacement, a website nobody has touched in six years. A buyer will spot it and price it in.

The adjustments frequently move the valuation more than the multiple does. On £400,000 of reported profit, £100,000 of legitimate add-backs at a 5x multiple is £500,000 of value. This is also why clean, timely management accounts matter at this point: adjustments you can evidence get accepted, and adjustments you assert get discounted.

Step Two: Choosing a Multiple

The multiple reflects risk and growth. Higher for predictable, diversified, growing businesses that run without the owner. Lower for volatile, concentrated, owner-dependent ones. Published sector averages are a starting reference, and small owner-managed businesses generally sit below them.

What pushes a multiple up:

• Recurring or contracted revenue rather than project-by-project work
• Customer spread, with no client above roughly 10% of revenue
• A management team that runs the business day to day
• Consistent or improving margins over several years
• Barriers to entry: IP, licences, accreditations, switching costs
• Growth that’s demonstrable rather than forecast

What pushes it down:

• Owner dependence, the big one
• Customer concentration. One client at 40% of revenue can knock a full turn off the multiple
• Volatile or declining profits
• Messy records, unfiled accounts, unresolved tax issues
• Legacy problems: employment disputes, dilapidations, an HMRC enquiry
• Sector headwinds or regulatory uncertainty

I’d treat any multiple quoted without reference to these factors as decoration. The honest answer to “what multiple will I get?” is that it depends on which of the above apply to you, and most of them are things you can change with two or three years’ notice.

Step Three: From Enterprise Value to What You Receive

Multiplying adjusted profit by a multiple gives enterprise value, the worth of the trading business. That is not what lands in your bank account. To get equity value you add surplus cash, deduct debt, and adjust for working capital.

Adjusted EBITDA × multiple	Enterprise value
+ Surplus cash	Cash beyond what the business needs to operate
− Debt	Loans, finance leases, overdraft, often director loans
+/− Working capital adjustment	Against an agreed normal level
=	Equity value

Two of these are routinely fought over.

Surplus cash. Sellers argue all cash is surplus. Buyers argue the business needs a float to operate and only the excess belongs to the seller. Where the line sits is negotiated, and on a cash-rich company it can be worth more than a full turn of multiple.

Working capital. Deals are usually done on the basis that a normal level of working capital is delivered with the business. Collect your debtors aggressively and delay paying suppliers before completion, and the adjustment claws it straight back. It’s worth understanding this early, because the instinct to tidy the balance sheet before a sale can be actively counterproductive.

A Worked Example

A recruitment business, three-year record, owner active in the business.

Reported operating profit	£320,000
Add back: director salary above market (£140,000 paid, £75,000 market)	+£65,000
Add back: spouse on payroll, not working in the business	+£28,000
Add back: one-off tribunal costs	+£22,000
Deduct: cost of replacing owner’s billing role	−£60,000
Adjusted EBITDA	£375,000
Multiple (agreed at 4.5x)	×4.5
Enterprise value	£1,687,500
Add surplus cash	+£180,000
Deduct bank loan	−£95,000
Equity value	£1,772,500

Note what happened. The adjustments added £55,000 net to profit, which at 4.5x is £247,500 of value, most of it from normalising the owner’s own remuneration. That’s a larger swing than moving the multiple from 4.5x to 5x.

On a gain of this size, the tax treatment matters too. Business Asset Disposal Relief at 18% covers the first £1m of gains, with the balance at 24%.

What Actually Moves the Price

If you want a higher number, in order of impact:

1. Reduce dependence on yourself. Promote or hire managers, move customer relationships to the team, take a genuine holiday and let the business run. This is worth more than everything below combined.
2. Make revenue recurring. Retainers, contracts, service agreements. Predictable income is worth a materially higher multiple than the same money earned project by project.
3. Fix customer concentration. One dominant client is a discount and, in a bad case, a deal-breaker.
4. Clean up the numbers. Timely management accounts, consistent policies, a tidy balance sheet, no surprises in due diligence. Every unexplained item becomes a price chip.
5. Resolve legacy issues before a buyer finds them. An open HMRC enquiry, an employment claim, a lease about to expire.
6. Demonstrate growth over at least two years, rather than forecasting it.

The consistent finding is that buyers pay for certainty. Almost every item on that list reduces the buyer’s risk, which is the same thing as increasing your multiple.

When You Need a Formal Valuation

For a straightforward trade sale, price is negotiated and a formal valuation is often unnecessary. You need one where:

• Selling to an Employee Ownership Trust. Trustees must take reasonable steps not to pay more than market value, so an independent valuation is effectively mandatory. See our guide to Employee Ownership Trusts.
• Granting EMI options. The share value must be agreed, and HMRC’s Shares and Assets Valuation team can agree it in advance.
• Share transfers between connected parties, where market value substitutes for the actual price for tax purposes.
• Divorce, probate or shareholder disputes, where an independent figure is needed.
• Raising finance, where a lender or investor wants supporting analysis.

An arm’s length price between unconnected parties is normally accepted by HMRC as market value without challenge, which is why trade sales rarely need a separate exercise.

Preparing a Business for Sale

Start two to three years out if you want to influence the price rather than just discover it.

That window lets you build a management team and evidence it working, establish a track record of consistent adjusted profit, resolve legacy problems quietly, get the reporting to a standard that survives due diligence, and satisfy the two-year qualifying period for BADR.

Owners who start six months out are usually selling on the buyer’s terms. The information is incomplete, the adjustments are hard to evidence, and every gap becomes a negotiating point. The businesses that achieve good prices almost always prepared for it.

Get Help Valuing Your Business

Valuation is where commercial judgement and tax planning meet, and where getting the sequence right matters. There’s no point optimising a multiple if the share structure fails the BADR conditions, and no point modelling an EOT on rules that changed in November 2025.

ARB Accountants works with owners on the whole picture: establishing maintainable profit, sense-checking a realistic range, identifying what’s suppressing the number while there’s time to fix it, and modelling the tax on different exit routes before terms are agreed.

Read next

• Business Asset Disposal Relief: 18% on the first £1m of gains
• Employee Ownership Trusts: the alternative exit route
• Management accounts: the records that make adjustments defensible
• What makes a strong balance sheet: what a buyer looks at first