What is the formula for valuing a company?

For most profitable UK SMEs the working formula is: Enterprise Value = Adjusted EBITDA × Sector Multiple. Equity Value is then Enterprise Value plus surplus cash, minus debt. Adjusted EBITDA strips out one-off costs and normalises the owner's remuneration to a market rate.

What multiple should I use to value my business?

Most owner-managed UK SMEs transact between 3× and 6× adjusted EBITDA, with sector, size, growth and customer concentration moving the figure inside — or outside — that range. Recurring-revenue software businesses can command more; owner-dependent service businesses often less.

Are online business valuation calculators accurate?

They give a ballpark. They cannot see the adjustments a valuer would make to earnings, the risk factors that move the multiple, or the specifics of your sector and buyer pool. For anything you need to rely on — tax, dispute, sale — commission an independent written valuation.

Insights

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

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, typically £495, delivered in 72 hours. Because we don't sell businesses, the figure carries no incentive in either direction. Get a fixed-fee quote.