Methodology
How We Produce Our Valuation Figures
The definitions, arithmetic, data sources, scope and limitations behind every figure on this site, including all fifteen calculators.
In short
We value UK SMEs by normalising earnings, applying an evidenced sector and size multiple to reach enterprise value, then working a full equity bridge to what shareholders actually receive. The calculators on this site apply that same arithmetic to the figures you enter. They produce indicative planning numbers, not formal valuations, because no tool can test your accounts, read your contracts or weigh the evidence for your sector.
Scope of this methodology
This page covers indicative figures: the calculator outputs, the short written indicative ranges we provide after a consultation, and the planning numbers we discuss on a call. It applies to UK incorporated, owner-managed trading businesses, broadly between £500,000 and £50m of turnover, with at least two years of filed accounts.
It does not cover pre-revenue ventures, regulated financial institutions, property investment vehicles valued on net asset value, or businesses in active insolvency. Those situations need a different discipline, and we say so rather than apply an SME earnings method that would mislead. Our eligibility checklist sets out both lists in full.
The four steps behind every figure
1. Normalise the earnings
We start from reported EBITDA and adjust for owner remuneration against market rate, one-off and non-recurring costs, non-trading income, personal expenditure run through the company, related-party rent on non-market terms and any accounting policy that a buyer would restate. The output is adjusted EBITDA. This step usually moves the answer more than the multiple does.
2. Select a multiple
We select a range from UK transaction observations in the same sector and size band, then position within that range on evidence: growth, margin, recurring revenue, customer concentration, owner dependency, contract quality, management depth and the quality of the financial record. A band, not a point, is the honest output at SME scale.
3. Work the equity bridge
Enterprise value becomes equity value after deducting debt and debt-like items, adding surplus cash and settling any working capital shortfall against the normal level. We treat this as its own step because it is where headline figures and real proceeds most often diverge.
4. State the assumptions and the limits
Every figure we give is accompanied by the assumptions behind it and what would change it. An indicative range with unstated assumptions is not useful to an owner making a decision.
Definitions we use consistently
| Term | As we use it |
|---|---|
| Reported EBITDA | Operating profit before interest, tax, depreciation and amortisation, taken from statutory or management accounts without adjustment. |
| Adjusted (normalised) EBITDA | Reported EBITDA after removing one-off, non-trading and discretionary owner items, and after charging a market-rate cost for any work the owner does for below-market pay. It is the earnings figure a buyer underwrites. |
| Enterprise value | The value of the trading business itself, independent of how it is financed. In our calculators it is adjusted EBITDA multiplied by the selected multiple. |
| Equity value | What the shareholders own: enterprise value less debt and debt-like items, plus surplus cash, adjusted for any working capital shortfall against the normal level. |
| Proceeds to the seller | Equity value for the shares being sold, less transaction costs and tax, and split between cash at completion and any deferred or conditional element. |
| Multiple | The ratio of enterprise value to adjusted EBITDA implied by comparable UK transactions in the same sector and size band. It is a summary of buyer behaviour, not a valuation method in itself. |
| Indicative range | A supported opinion on the likely value band, produced from limited information. It is not a formal valuation report and is not intended for court, HMRC or audit use. |
| Formal valuation report | A documented, evidenced valuation prepared for a defined purpose and recipient, with stated assumptions, comparable evidence, an equity bridge and a signed conclusion. This is a paid engagement. |
Data sources
- Our own UK SME engagement experience, including completed valuations, sale processes, EOT and MBO transactions and shareholder events.
- Our specialist partner and adviser network, which gives visibility of live UK SME deal pricing and structure across sectors.
- Publicly filed accounts and publicly reported UK transaction data, used to cross-check sector bands rather than to produce them mechanically.
- Published UK tax and company law positions from official sources, applied as at the date this page was last reviewed.
We do not publish invented volumes, rankings or precision we cannot support. Where a figure is a band, we present it as a band.
Official sources we rely on
- HMRC Shares and Assets Valuation Manual for the approach expected where a valuation has a UK tax purpose.
- Companies House for filed accounts, shareholdings and company structure.
- International Valuation Standards for the framework our formal report work follows.
How this applies to the calculators
All fifteen tools in the business valuation calculator suite use the same definitions above and the same arithmetic. Each calculator page shows the exact formula it applies, a worked UK SME example, what each input means, what moves the result and where the method stops being reliable. Results are calculated from your inputs only. Nothing is weighted by hidden assumptions about your business, and no output is a formal valuation.
Limitations you should assume
- An indicative figure produced from unverified inputs can be materially wrong if the underlying earnings are not normalised correctly.
- Multiples describe past observed behaviour. A specific buyer, a strategic premium or a weak market can sit well outside any band.
- Deal structure changes real value. Cash at completion, deferred consideration, earn-outs and loan notes carry different risk and are not interchangeable at face value.
- Nothing on this site is tax advice, legal advice or a formal valuation opinion, and it is not suitable for court, HMRC or audit purposes.
Who is responsible for this methodology
The methodology is set and reviewed by Tony Vaughan, founder and lead adviser at BusinessValuation.co.uk, supported by our specialist partner network. BusinessValuation.co.uk is a trading name of Exit Partners Limited, registered in England and Wales, company number 11721705, registered office The Studio, Brentmoor Road, Woking, Surrey GU24 9NE.
Last reviewed: September 2026
Methodology questions
The questions owners and their advisers most often ask about how we arrive at a number.
Are the calculator results a valuation?
No. Every calculator on this site produces an indicative figure from the inputs you supply. It applies the same arithmetic we use in practice, but it cannot test your figures, review your accounts, examine contracts or weigh sector evidence. Treat the output as a planning number and a structured way to frame a conversation, not as a valuation you can rely on for a transaction, a tax filing or a dispute.
Where do the sector multiples come from?
Our sector bands are built from UK SME transaction observations in our own engagement experience and adviser network, cross-checked against publicly reported UK deal data and filed accounts. They are expressed as bands rather than single points because size, growth, customer concentration, owner dependency and deal structure move the outcome materially within any one sector. We do not publish a single national average multiple, because in practice no such number exists for an SME.
Why do you normalise earnings before applying a multiple?
A buyer prices the business it will own after completion, not the one the current owner runs for tax efficiency. Owner remuneration above or below market rate, one-off legal or restructuring costs, non-trading income, personal expenditure run through the company and related-party rent on non-market terms all distort reported profit. Normalising these items produces the earnings figure both sides can defend, and it is usually the single largest driver of the final number.
Why does enterprise value differ from what I receive?
Enterprise value prices the trading business. Shareholders receive equity value after debt, debt-like items such as finance leases, hire purchase, deferred consideration on past acquisitions and overdue tax are deducted, surplus cash is added and any working capital shortfall is settled. Transaction costs and tax then apply. The gap between headline enterprise value and net cash in your hand is frequently significant, which is why we treat the equity bridge as a separate step.
How often is this methodology reviewed?
This page and the calculator methodology behind it were last reviewed in September 2026. We review the definitions, the equity bridge treatment and the sector bands at least annually, and sooner when tax rules or observed UK SME deal behaviour change materially.
Do you follow a recognised valuation standard?
Our formal report work follows the discipline set out in the International Valuation Standards framework: a defined purpose, a defined basis of value, stated assumptions, evidenced inputs and a reasoned conclusion. Where a valuation is required for a specific statutory or tax purpose, the relevant HMRC or court requirements for that purpose take precedence, and we state them explicitly in the engagement letter.
Want your own figures worked through properly?
A free initial consultation with our team, then a short written indicative range where the situation warrants it. No obligation.