Insights

Company valuation calculator: how to value a UK business (with formula)

A first-pass UK company valuation is Adjusted EBITDA multiplied by a sector multiple, with surplus cash added and debt deducted to reach equity value. The reliability of the answer depends entirely on how carefully the earnings figure is normalised.

If you want a first-pass figure for what your company is worth, you don't need software — you need the same formula professional valuers use, applied honestly. This guide walks through it, with the adjustments that separate a realistic number from a flattering one.

The core formula

For most profitable UK SMEs, valuation comes down to:

Enterprise Value = Adjusted EBITDA × Sector Multiple
Equity Value = Enterprise Value + Surplus Cash − Debt

Three inputs, three places where the answer is won or lost: the earnings figure, the multiple, and the balance-sheet adjustments at the end.

Step 1 — Work out adjusted EBITDA

Start with EBITDA — earnings before interest, tax, depreciation and amortisation — then normalise it. A buyer is paying for the profit the business would generate under normal ownership, not the profit that happens to appear in your accounts.

• Add back one-off costs: legal fees for a dispute, a failed product launch, a redundancy round.
• Normalise owner's pay: if you draw £30k but a market-rate MD would cost £120k, deduct the £90k gap. If you overpay yourself, add the excess back.
• Strip out personal expenses: cars, phones, subscriptions the business wouldn't need under new ownership.
• Remove non-trading income: rent from a property held in the company, investment income.

The result is maintainable adjusted EBITDA — the profit a buyer can expect to inherit.

Step 2 — Choose a defensible multiple

As a working guide for UK owner-managed businesses:

• 2–3× — small, owner-dependent service businesses; lifestyle firms.
• 3–5× — established SMEs with a management layer, diversified customers, steady margins.
• 5–7× — larger, growing businesses with recurring revenue and low key-person risk.
• 7×+ — SaaS, healthcare, and niche specialists in demand from trade or PE buyers.

Five factors move the multiple inside (or outside) the range: recurring revenue, customer concentration, owner dependence, growth trajectory, and quality of management information.

Step 3 — Adjust for cash and debt

The multiple gives Enterprise Value — what the trading business is worth on a debt-free, cash-free basis. To get to what the shares are worth, add surplus cash (anything above what the business needs to trade), and deduct interest-bearing debt (bank loans, director loans, finance leases, deferred consideration owed).

Worked example

A Bristol IT services company, £2.4m turnover, reports £280k operating profit. Depreciation is £40k, so EBITDA is £320k. The owner pays himself £45k; a market-rate MD would cost £110k — deduct £65k. Add back £25k of one-off legal fees from a supplier dispute.

Adjusted EBITDA = £320k − £65k + £25k = £280k.

With 60% recurring managed-service revenue, no client over 15% of turnover, and a working management team, a 4.5× multiple is defensible. Enterprise Value = £1.26m. The company holds £180k of surplus cash and £120k of bank debt, so Equity Value ≈ £1.32m.

Where calculators fall down

A calculator can't see your accounts. It doesn't know which costs are one-offs, whether your revenue is contracted or won again each year, or how a buyer in your sector would price the risks. It gives a number in the right postcode; it doesn't give one you'd negotiate from, put in front of HMRC, or rely on in a dispute.

Getting a real figure

At The Business Valuers we produce independent, written valuations for UK SMEs on a fixed fee, from £495 for a straightforward sale or buy-side valuation, delivered in 3 working days from receipt of the information we need. Because we don't sell businesses, the figure carries no incentive in either direction. Get a fixed-fee quote.

Related reading: How much is my business worth? · How much does a business valuation cost?