Before you speak to a single buyer, a broker or an adviser, you should have your own view of what your business is worth. Not a hopeful number, and not a figure a broker floats to win your instruction, but a defensible range you have built from your own accounts. This guide walks you through doing exactly that: taking your reported profit, normalising it, applying a sensible multiple, and then bridging from the value of the trade to the amount that actually reaches your bank account.
This is the practical, do-it-yourself version. If you want the theory behind each valuation method (earnings multiples, seller's discretionary earnings, asset-based approaches and discounted cash flow), our business valuation guide covers the methods in full. Here we stay on the how: five steps, a full worked example, and the checks that stop you over- or under-valuing your own company. This guidance is general and does not replace advice on your specific numbers.
Step 1: Start with your adjusted profit (the add-backs)
Buyers do not pay a multiple of the profit you happen to report. They pay a multiple of the profit a new owner would inherit. The gap between those two figures is where most of the value work happens, and it is called normalising, or adjusting, the earnings.
Start from your operating profit, then work towards adjusted EBITDA (earnings before interest, tax, depreciation and amortisation). EBITDA strips out financing and accounting effects so you are looking at the underlying cash the trade produces. Then apply your add-backs, the costs a new owner simply would not carry:
- Excess owner remuneration. If you pay yourself well above the market rate for the job, add back the excess. Crucially, you must also deduct a market-rate wage for whoever would actually run the business after you leave. If you take £90,000 but a replacement managing director costs £55,000, the net add-back is £35,000, not £90,000.
- Personal and discretionary costs. Your car, personal travel, spouse's nominal salary, subscriptions and anything else run through the company that does not drive trade.
- Genuine one-offs. A rebrand, a one-time legal dispute, relocation costs, an abortive project. These are non-recurring, so a buyer will accept them being added back, provided you can prove they will not repeat.
Be disciplined. Do not add back costs the business genuinely needs to keep trading, and keep evidence for every adjustment. A buyer's advisers will strip out anything that looks like earnings management, and an add-back you cannot defend does more damage than one you never claimed, because it dents your credibility on everything else.
Step 2: Pick the right method for your business
The right approach depends on what kind of business you are valuing:
- Profitable, established trading businesses are valued on a multiple of adjusted EBITDA. This is the default for most companies with a management structure and reliable earnings.
- Small owner-operator businesses, where you are effectively the manager, are often valued on seller's discretionary earnings (SDE): the full financial benefit one working owner takes out, including your salary. Buyers want the whole picture of what the business supports for one person.
- Asset-heavy businesses (manufacturing, care homes, property-backed operations) carry a net-asset floor. Plant, machinery, freehold property and stock are valued alongside or instead of earnings.
- Loss-making or pre-profit businesses fall back on net assets, or on strategic value to a specific buyer, rather than an earnings multiple.
If you can, value your business two ways and compare. A profit multiple that lands far above your net-asset value tells you goodwill is doing the heavy lifting, which is normal for a service business but a warning sign for an asset-heavy one. For the full method theory, see the valuation methods pillar.
Step 3: Apply a sensible multiple
The multiple is where owners most often go wrong, usually optimistically. There is no single correct figure. Most owner-managed UK businesses change hands at roughly three to six times adjusted EBITDA, but the number is driven by risk and sector as much as by profit. Broadly, sector norms look like this:
| Sector | Typical basis | Rough multiple range |
|---|---|---|
| Recruitment | Adjusted EBITDA / % of net fee income | ~4 to 6x (temp/contractor book valued higher) |
| Manufacturing | Adjusted EBITDA plus asset backing | ~4 to 6x |
| Ecommerce | Multiple of SDE / adjusted net profit | ~2.5 to 4x (small owner-operator) |
| Construction | Net assets + WIP, lower and lumpier earnings | ~2 to 4x |
| Accountancy | Multiple of gross recurring fees | ~0.8 to 1.4x fees |
| Care home | EBITDARM × yield, or per bed | Property-led |
These are starting points, not promises. What moves your multiple up or down within (and beyond) the range:
- Upward: recurring or contracted revenue, a diversified customer base, low dependence on you personally, a capable management team, and a growing, profitable trend.
- Downward: customer concentration (one client that is more than a fifth of turnover), lumpy project income, thin or declining margins, and a business that cannot run without the owner in it every day.
Selling a business in a specific sector? Our sector guides go deeper on the exact basis buyers use, for example selling a manufacturing business or selling a recruitment business.
Step 4: Bridge from enterprise value to equity value
A multiple of profit gives you enterprise value, the worth of the trading operation itself. That is not what lands in your pocket. To reach equity value, the amount you receive for your shares, you adjust for the balance sheet:
- Add surplus cash that is not needed to run the business day to day. Cash tied up in working capital is not surplus and does not get added.
- Subtract debt and debt-like items: bank loans, overdrafts, director's loans owed by the company, finance leases, and any unpaid tax or deferred liabilities a buyer will inherit.
This bridge is why two businesses with identical profit can be worth very different amounts. A debt-free company sitting on surplus cash is worth materially more than the same trade loaded with borrowings.
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Step 5: A full worked example
Take a profitable owner-managed company. Here is the value built from the ground up:
| Step | Figure |
|---|---|
| Reported operating profit | £280,000 |
| Add back: owner's salary (£90,000) less market-rate replacement MD (£55,000) | +£35,000 |
| Add back: personal motoring, travel and discretionary costs | +£10,000 |
| Add back: one-off legal dispute and rebrand | +£15,000 |
| Add back: depreciation (to reach EBITDA) | +£40,000 |
| Adjusted EBITDA | £380,000 |
| Enterprise value at 3x (low) | £1,140,000 |
| Enterprise value at 4x (mid) | £1,520,000 |
| Enterprise value at 5x (high) | £1,900,000 |
| Add surplus cash | +£150,000 |
| Subtract debt (bank loan + finance leases) | −£100,000 |
| Equity value range | £1.19m to £1.95m (mid ~£1.57m) |
The single most important word in that table is range. Anyone quoting you a precise, single figure for a private company is guessing with false confidence. Your job is to know the range, know what would move you towards the top of it, and go into any conversation able to defend the number.
Sense-check against real deals
A number built from a spreadsheet still needs a reality check against the market. Three checks worth doing:
- Recent sales in your sector. Business-transfer listings, trade press and industry M&A reports give a feel for the multiples buyers are actually paying, not the ones sellers hope for.
- A second method. If your earnings multiple and your net-asset value point to wildly different numbers, understand why before you trust either.
- The affordability test. Could a realistic buyer fund your asking price from the profits the business generates in a sensible payback period? If the maths does not work for them, it will not sell at that number, however elegant your valuation.
Why your number and a buyer's will differ
Even a well-built valuation is an opinion of worth. The price is whatever a specific buyer will pay on specific terms, and the two rarely match exactly:
- Buyer type changes the answer. A strategic buyer removing a competitor or acquiring your customer base may pay above your range. A purely financial buyer pricing on return may sit below it.
- Structure changes the real value. A headline price that is half cash and half earn-out is worth less than the same figure paid in full on completion, because the deferred part carries risk and depends on future performance.
- Diligence tests your add-backs. Every adjustment you claimed in Step 1 gets scrutinised. Weak add-backs get stripped, and with them, a multiple of value.
Competition is what closes the gap in your favour. One interested buyer means you take their price; several means the market sets it. That is why preparation and a credible process matter as much as the valuation itself. See our guide to selling your business for the full journey from valuation to completion.
Don't forget the tax: what you keep, not what you sell for
Your valuation tells you what the business is worth. What you keep depends on how the sale is taxed, and the route you take changes the bill significantly. For 2026/27, most share sales fall under Capital Gains Tax, with Business Asset Disposal Relief giving an 18% rate on up to £1m of qualifying lifetime gains (up from 14% in 2025/26), and gains above that taxed at 18% or 24% depending on your band, after the £3,000 annual exempt amount.
The exit route matters. A trade sale, a management buyout and a sale to an Employee Ownership Trust are all taxed differently. One point worth flagging: the CGT relief on a sale to an Employee Ownership Trust was cut from 100% to 50% with immediate effect from 26 November 2025, so only half the gain is now relieved and the other half is chargeable. Any guide that still tells you a sale to an EOT is entirely tax-free was written before that change and is now out of date. For the mechanics of tax on exit, see our selling your business: CGT and BADR guide, and model the number before you agree heads of terms, not after.
When to get a formal valuation
A self-assessment like the one above is exactly right for planning: deciding whether to explore a sale, testing your readiness, or spotting the value-killers worth fixing first. It is not a substitute for an independent, formal valuation whenever the figure carries weight beyond your own planning:
- Share transfers, issuing shares or granting options where HMRC may test the value.
- Shareholder disputes, divorce or probate, where the number can be contested.
- A sale to an Employee Ownership Trust, which requires an independently assessed market value.
Formal valuations are prepared to recognised professional standards and are built to stand up to challenge. Bodies such as the ICAEW and RICS set the principles, and where a valuation is tax-driven, HMRC's Shares and Assets Valuation manual sets out how it approaches value. For the current CGT position, see the gov.uk guidance on Business Asset Disposal Relief and Capital Gains Tax rates and allowances.
A note on what this is and is not. The figures here are indicative and educational, not a formal or RICS valuation and not personal advice. This is a business (not a business-rates or Valuation Office) valuation, so it excludes any rateable-value assessment. Advising on and arranging the sale of a company by way of its shares is unregulated activity; we do not arrange, source or introduce the finance that funds a buyout, which is a regulated matter for an authorised broker. If you want your own figures pressure-tested and the tax modelled, we can help: book an exit valuation and tax review through our team and get in touch.