How to Value a Business
in the UK: A Complete Guide

In this guide

What is a business valuation?

A business valuation is an assessment of the economic value of a business, or a share or interest in a business, expressed in monetary terms. It is not the same as what you paid to build the business, what it cost to run, or what it would cost to replace. It is an estimate of what a willing, informed buyer would pay a willing, informed seller in an arm’s-length transaction on a specific date.

Valuations are needed in many situations: when you are preparing to sell, when a management team is buying the business from the founder, when a pension scheme is lending money to a connected company, when you are issuing share options to employees under an EMI scheme, or when shareholders disagree and need an independent number to negotiate from.

The method used depends on the purpose of the valuation, the stage of the business, the sector it operates in, and the audience the report needs to satisfy. There is no single correct method — in practice, most professional valuations use two or three methods and triangulate a conclusion from the results.

The EBITDA multiples method

For most UK SMEs with at least two years of trading history, the EBITDA multiples method is the primary valuation approach. It is the method buyers, corporate finance advisers, and private equity funds use instinctively when they look at a business, and it is the method that produces the most directly comparable results.

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a measure of the business’s core operating profitability, stripped of the effects of financing decisions, accounting policies, and capital expenditure patterns. The idea is to isolate the cash-generating power of the underlying business.

What is normalised EBITDA?

Reported EBITDA from the statutory accounts is rarely the number used in a valuation. The accounts include items that are specific to the current ownership structure — owner’s salary and benefits above market rate, one-off professional fees, personal expenses run through the business, and costs related to the transition. Removing these items gives you a normalised EBITDA, which represents what the business would earn under a new owner running it at commercial cost levels.

Getting the normalisation right is one of the most contested areas in any SME valuation. Buyers will argue for lower adjustments. Sellers will argue for higher ones. An ICAEW-grade valuation documents every adjustment explicitly so there is no ambiguity.

How is the multiple determined?

Once you have a normalised EBITDA, a multiple is applied. The multiple reflects a range of factors: the size of the business, the quality and predictability of its earnings, the sector it operates in, the growth trajectory, and the risk profile. A business generating £1m EBITDA in a high-recurring-revenue professional services firm might attract a 6x multiple. The same EBITDA in a commoditised, owner-dependent manufacturing business might attract 3.5x.

The formula is straightforward: Enterprise Value = Normalised EBITDA × Multiple. The enterprise value is then adjusted for net debt (cash minus borrowings) and working capital to arrive at an equity value.

Discounted cash flow (DCF) analysis

The discounted cash flow method values a business based on the present value of the cash flows it is expected to generate in the future. Unlike EBITDA multiples, which look at current earnings and apply a market-derived factor, DCF is a forward-looking method that requires you to forecast the business’s performance and then discount those future cash flows back to today’s value using a risk-adjusted discount rate.

How DCF works in practice

A typical DCF model projects free cash flows for five to seven years, then applies a terminal value to capture the value of the business beyond the forecast period. The discount rate used — usually referred to as the Weighted Average Cost of Capital (WACC) — reflects the risk profile of the business and the required return of a notional investor.

For a low-risk, established business with stable recurring revenues, the discount rate might be 12-15%. For an early-stage business with significant execution risk, it might be 25-35% or higher.

When DCF is most useful

DCF is most valuable when the business has an unusual growth profile that is not captured by current earnings — for example, a SaaS business growing at 80% per year will not be well-served by a multiple applied to current EBITDA, which may be negative or very low. In these cases, DCF analysis of the projected cash flows gives a more economically meaningful result.

DCF is also the primary method used in legal proceedings and for HMRC purposes, because it requires every assumption to be made explicit and every number to be traceable — which is what auditors and courts expect.

The limitation of DCF is that the output is only as good as the inputs. A model with aggressive growth assumptions and a low discount rate can produce almost any number the preparer wants. This is why DCF outputs are always cross-checked against EBITDA multiples and comparable transactions in a credible valuation.

Asset-based valuation

The asset-based approach values a business by reference to the net value of its assets — what it owns minus what it owes. It is the most straightforward method in concept, but it has significant limitations for most trading businesses because it ignores the earnings power of the business entirely.

When asset-based approaches are appropriate

Asset-based valuation is most useful where the primary value of the business lies in its assets rather than its earnings — property holding companies, investment vehicles, businesses with significant tangible asset bases (plant, equipment, land), or businesses that are being wound up or broken up. It is also used as a floor value in other transactions: if the asset-based value exceeds the earnings-based value, there may be value to unlock by realising the assets.

For most service businesses, technology companies, and professional practices, the asset-based approach significantly understates the business’s true value because the earnings multiple approach captures the goodwill and intangible value that the assets alone do not reflect.

Revenue multiples

Revenue multiples value a business as a function of its top-line revenue rather than its profitability. This approach is used when EBITDA is not a meaningful metric — typically for pre-profit businesses, very high-growth companies where margins are being intentionally suppressed to fund expansion, or SaaS businesses where annual recurring revenue (ARR) is the standard metric.

Revenue multiples for SaaS businesses in the UK have historically ranged from 2x to 10x ARR depending on growth rate, net revenue retention, gross margin, and the quality of the recurring revenue base. At the peak of the 2020-2022 cycle, multiples were significantly higher. In the current environment, multiples have compressed and investors and acquirers are placing more weight on profitability.

For non-SaaS businesses, revenue multiples are rarely the primary method. A business with a 5% EBITDA margin valued at 1.5x revenue is worth 30x EBITDA — which would be an extraordinary result in almost any sector. Revenue multiples need to be calibrated against the underlying margin profile to be meaningful.

What actually drives your multiple?

Understanding your EBITDA is only half the picture. The multiple applied to it is the other half — and it is determined almost entirely by qualitative factors that buyers assess during due diligence. These are the factors that separate a 3x business from a 7x business with identical EBITDA.

The single most damaging factor in an SME valuation is owner dependency. If the business cannot operate without you, a buyer is effectively buying a job, not a business. The multiple contracts sharply. The most valuable thing you can do to increase your business’s sale value — at any horizon — is to build a management team that makes you genuinely dispensable.

UK sector EBITDA multiples 2025/26

The following ranges represent indicative EBITDA multiples for UK SME transactions observed in the 2024-2026 period. These are for businesses with revenues between £1m and £20m. Larger businesses and businesses with exceptional characteristics will attract higher multiples. These are starting ranges — the actual multiple depends on all the factors discussed above.

These are indicative ranges only. Actual multiples in any specific transaction depend on the particular characteristics of the business, the deal structure, the buyer type, and prevailing market conditions at the time of transaction.

Which valuation method is right for your situation?

When do you need an independent valuation?

There is a material difference between understanding roughly what your business might be worth — which any owner can do with a basic knowledge of their sector’s multiples — and having a signed, documented valuation report produced by a qualified professional. The latter is required in specific situations:

• Where HMRC requires it — EMI scheme submissions, SSAS connected-party transactions, and certain share transfers all require a valuation from a qualified professional
• Where a transaction involves connected parties and the price must be demonstrably at open market value
• Where you are negotiating a sale or MBO and need a number that can withstand challenge from the other side’s advisers
• Where legal proceedings require an expert opinion on value
• Where a lender needs documented evidence of value before providing acquisition finance
• Where pension trustees need to demonstrate that an investment was made on commercial terms

In all these cases, a rough estimate based on industry rules of thumb is not sufficient. The report needs to be signed by a qualified professional, with full methodology, documented assumptions, and the professional standing to withstand scrutiny.